Canadian Institute of Technology
International Business Finance, Sh. Cani
Fall Semester 2020-2021
Quiz no.3 (worth 98 points)
Time: 30 minutes
Tirana, January 5, 2021
First Name, Last Name
Najada Zylyftari
I.
Multiple Choice - 10 points - Identify the choice that best completes the statement or
answers the question.(2 point each)
1. A market that facilitates the conversion of currencies
a.
b.
c.
d.
Money market funds
foreign market exchange
Finance company
money market securities
2. The system that allows the transfer of money between savers and borrowers
a.
b.
c.
d.
financial system
diversification
investment
financial asset
3. A market for reselling financial assets
a.
b.
c.
d.
Bear Market
Primary Market
Secondary Market
Money Market
4. LIBOR is:
a.
b.
c.
d.
e.
the interest rate commonly charged for loans between banks.
the average inflation rate in European countries.
the maximum loan rate ceiling on loans in the international money market.
the maximum deposit rate ceiling on deposits in the international money market.
the maximum interest rate offered on bonds that are issued in London.
5. Creditors provide credit in foreign markets:
a. to capitalize on higher foreign interest rates
b. when they expect foreign currencies to depreciate against their own, and
c. to reap the benefits of high employment.
II. True/False Questions 14 points (2 point each)
1.
Capital Gain → The difference between the selling price and purchase price that results in a
financial loss for the seller.
True
False
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2.
Financial Intermediary → An institution that helps channel funds from savers to borrowers.
True
3.
False
Distinction between direct and indirect finance is: → Who owns the underlying asset?
True
4.
Euro money market → dollar deposits in banks in Europe and other continents called Eurodollars
or Eurocurrency
True
5.
False
The largest stock exchange in the world → London’s Stock Exchange
True
7.
False
What is a foreign exchange indirect quotation for the U.S.? → The number of units of a foreign
currency per dollar. 1/direct quotation
True
6.
False
False
Treasury bills → represent government short-term borrowing in the money market
True
False
III. Short Answer Question 50 points (6 points each)
1. Why the international financial system does exist?
The financial market exists because it allows a broader exchange of contracts and financial instruments.
And it is designed in that form that it gives every investor the opportunity to be part of it.
2. Which are three main functions of a Financial System?
Financial markets allow the flow of fund between savers and borrowers. So it makes it possible
for funds to go from people who save them to people or investors who need them. It allows a
diversity for its investors because there are so many financial instruments that you can choose
the level of return, the risk you want to overtake and other aspects related to an investement.
3. What is Indirect Finance?
Indirect finance is when a business borrows money but with an intermediary and not directly
from its investors. For example when a bank finds money for a business and gets an interest for
that service.
4. What is LIBOR?
LIBOR is a benchmark interest rate that serves for banks that indicated the cost of borrowing
between banks, for the short term loans.
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5. Which are five Advantages of indirect financial flow markets?
The economies of scale allow investors to profit from the volume of the business, and reap
operational and financial benefits. Indirect financial markets offer a variety of financial
instruments from which the investors can choose, and these instruments can also be different
from the interest rates that they offer, their maturity, liquidity of even the risk which the investors
face.
6. Which kind of stocks is called “Yankee stock offerings”?
Yankee stock offering are bonds which are issued from a foreign bank but in the us and in
us dollars. So basically the bonds is traded in the US but is issued in a foreign country.
7. Which kind of bonds is called Eurobonds?
A Eurobond is a financial instrument (debt instrument) which is issued in different
currency from that of the home country where it is actually issued. These bonds are
usually issued by the European government and companies to raise funds in a foreign
country.
8. Why interest rates are crucial for MNC’s?
When there is a change in the interest rates it means that there will be changes in the
cost of financing. Since MNC borrow money for investing in their operations this means
that the cost of financing these operations will change, if there will be fluctuations.
9. Why borrowers borrow in foreign markets?
To create profits from the lower foreign interest rates or to profit when they think that the
foreign currency to depreciate in value against their home currency.
10. Why creditors provide credit in foreign markets?
To capitalize or to create profit from the movements of the exchange rates in foregin markets,
because they expects that the foreign currency to increase in value against their home currency or
to create profits from the opportunities that allow the diversification.
IV.
Exercises –24 points (each worth 8 points). Please display all calculations in your answer
sheet in order to receive full credit.
1. Suppose that an umbrella costs USD 20 in Michigan, and the USD/CAD exchange rate
is 0.84. How many USD do you need to buy the umbrella in Atlanta?
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2. Assume the Canadian dollar is equal to £0.51 and the Peruvian Sol is equal to £0.16.
The value of the Peruvian Sol in Canadian dollars is:
a. about 0.3621 Canadian dollars.
c. about 2.36 Canadian dollars.
b. about 0.3137 Canadian dollars.
d. about 2.51 Canadian dollars.
3. Assume that a bank's bid rate on Swiss francs is £0.25 and its ask rate is £0.26. Its bidask percentage spread is :
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