CHAPTER 11 International Banking and Money MarketInternational Banking ServicesThe Worlds Largest BanksReasons for International BankingTypes of International Banking OfficesCorrespondent BankRepresentative OfficesForeign BranchesSubsidiary and Affiliate BanksEdge Act BanksOffshore Banking CentersInternational Banking FacilitiesCapital Adequacy StandardsInternational Money MarketEurocurrency MarketEurocreditsForward Rate AgreementsEuronotesEurocommercial PaperInternational Debt CrisisHistoryDebt-for-Equity SwapsInternational Finance in Practice: LDC Lenders Should Have Listened to David HumeThe Solution: Brady BondsJapanese Banking CrisisThe Asian CrisisSummaryMINI CASE: Detroit Motors Latin American ExpansionAppendix 11A: Eurocurrency CreationInternational Banking Services1 International banks are different from domestic banks in what way(s)?a) International banks can arrange trade financingb) International banks can arrange for foreign exchange transactions.c) International banks can assist their clients in hedging exchange rate risk.d) All of the aboveAnswer: d) 2 Major distinguishing features between domestic banks and international banks are:a) The types of deposits they accept.b) The types of loans and investments they make.c) Membership in loan syndicates.d) All of the aboveAnswer: d) 3 Merchant banks are different from traditional commercial banks in what way(s)?a) Merchant banks can engage in investment banking activitiesb) Merchant banks can arrange for foreign exchange transactions.c) Merchant banks can assist their clients in hedging exchange rate risk.d) All of the aboveAnswer: a) The Worlds Largest Banks4 By far the most important international finance centers are:a) New York and Londonb) New York, London, and Tokyoc) New York, London, Tokyo, Paris, and Zurichd) New York, London, Tokyo, Paris, Zurich, and FrankfurtAnswer: b)Reasons for International Banking5 Multinational banks are often not subject to the same regulations as domestic banks.a) There may be increased need to publish adequate financial information.b) There may be reduced need to publish adequate financial informationc) There requirements to publish adequate financial information are the same.d) None of the aboveAnswer: b)6 A domestic bank that follows a multinational client abroad to preserve that banking relationship:a) Is playing the role of the desperate housewife in this relationship.b) Is pursuing a wholesale defensive strategy.c) Is pursuing a retail defensive strategy.d) None of the aboveAnswer: b)7 A domestic bank that becomes a multinational bank to prevent erosion by foreign banks of the travelers checks, touring, and foreign business market:a) Is playing the role of the desperate housewife in this relationship.b) Is pursuing a wholesale defensive strategy.c) Is pursuing a retail defensive strategy.d) None of the aboveAnswer: c)8 Banking tends to bea) A low marginal cost industryb) A high marginal cost industry c) A constant average cost industryd) None of the aboveAnswer: a)9 A U.S.-based multinational banka) Would not have to provide deposit insurance and meet reserve requirements on foreign currency depositsb) Would have to provide deposit insurance and meet reserve requirements on foreign currency depositsc) Would not have to provide deposit insurance but would have to meet reserve requirements on foreign currency depositsd) Would have to provide deposit insurance but not meet reserve requirements on foreign currency depositsAnswer: a)10 Currently, the biggest bank in the world isa) Citigroupb) Bank of Americac) UBSd) HBOAnswer: a)Rationale: this title can change, but at press time, the answer was Citigroup, with Bank of American coming in at number 5.11 Which of the following are reasons why a bank may establish a multinational operation?a) Low marginal and transaction costs b) Home nation information services, and prestigec) Growth, and risk reductiond) All of the aboveAnswer: d) Types of International Banking OfficesCorrespondent Bank12 A correspondent bank relationship is established when:a) Two banks maintain deposits with one another.b) Two banks become pen pals.c) A group of banks form a syndicate to spread out the risk and cost of a large bond offering.d) All of the aboveAnswer: a) 13 Correspondent bank services includea) Prepaid postage and packing materialsb) Letters of introductionc) Foreign exchange conversionsd) b) and c)Answer: d)14 Correspondent bank relationships can be beneficiala) Because a bank can service its MNC clients at a very low costb) Because a bank can service its MNC clients without the need to have personnel in many different countries.c) Because a bank can service its MNC clients without developing its own foreign fac