Answered: nterest was forbidden from being…

nterest was forbidden from being charged on loans, so the Medici made money through: Trading futures contracts Extortion Commodity trading Foreign exchange trading

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter11: Managing Transaction Exposure

Section: Chapter Questions

Problem 3BIC

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Concept explainers

Types of Money Market Instruments

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Interest was forbidden from being charged on loans, so the Medici made money through:

		Trading futures contracts
		Extortion
		Commodity trading
		Foreign exchange trading

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QUESTION 5 Interest was forbidden from being charged on loans, so the Medici made money through: a. Foreign exchange trading b. Extortion c. Commodity trading d. Trading futures contracts
1. At any given time, the bank will purchase foreign exchange currency at what cost? a. market price b. client's selling price c. lower than the selling price 2. A bond call price amount is a. lower than par value b. higher than par value c. lower than discount value
16-If the underlying transaction gives you denominated in a foreign currency, the general principle behind a money market hedge states that you need an equivalent liability in the money market to provide a hedge. a. a forward contract b. a foreign bank account c. a liability d. an asset
c) In what three ways do commercial banks make a profit from the monetary system? (d) In Canada, what is the equivalent of the U.S. Federal Reserve? e) Suppose that the United States were to adopt a system of full-reserve banking; thatis, demand deposits would be illegal to lend out, and banks would only charge a nominalfee for safekeeping. Would this help to fix the problems that Mike Maloney layed out? Explain your answer.
Fannie Mae and Freddie Mac play an important role in the mortgage market. True False The effective yield on foreign money market securities is not affected by exchange rate movements. True False
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Describe how foreign exchange transactions using futures would differ from those using forward exchange contracts. Hint: the bank always makes a profit on forex, by taking more of one currency in the exchange transaction and giving less of the other currency to the customer.
Which of the following refers to the money market hedge of a company’s payables (receivables)? 1. A company sells (buys) its foreign currency receivables (payables) forward to eliminate its exchange risk exposure. 2. A company borrows (or lends) in foreign currency to hedge its foreign currency receivables (payables), thereby matching its assets and liabilities in the same currency. 3. A company buys a currency at the place where it is priced cheaper and immediately sells it at the place where it is priced higher. 4. A company buys a foreign currency call (put) option to hedge its foreign currency payables (receivables).
To force the value of the British pound to depreciate against the dollar, the Federal Reserve should: A. sell pounds for dollars in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market. B. sell dollars for pounds in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market. C. sell dollars for pounds in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market. D. sell pounds for dollars in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market.
A bank enters into an interest rate swap with a nonfinancial counterparty using bilaterally clearing where it is paying a fixed rate of 3% and receiving LIBOR. No collateral is posted and no other transactions are outstanding between the bank and the counterparty. What credit risk is the bank subject to? Discuss whether the credit risk is greater when the yield curve is upward sloping or when it is downward sloping.
Why will bank never opt for the rejection of payment of LC to exporters bank?
Financial institutions engage in the purchasing and selling of foreign currencies for all of the following reasons except to: a. Hedge against foreign exchange exposures. b. Allow customers access to foreign markets to transact business. c. Avoid trading in speculative investments. d. Allow itself and/or customers to trade and invest in foreign financial markets.