Exam tricky question Flashcards
Functions of International Banking
Taking deposits and making loans in domestic currency to foreign governments, enterprises, and individuals
.
Taking deposits and lending in foreign currencies to domestic and foreign entities.
Managing and acting as agents for syndicated loans, designing special financing requirements for international trade and projects.
Foreign exchange transactions, dealing in gold and precious metals, international money transfers.
Providing documentary letters of credit, standby letters of credit, multiple currency credit lines, bank acceptances, Euro note insurance facilities.
Trading in currency futures and options, financial futures and options, interest rate and asset swaps, writing interest rate caps.
Underwriting and placement of Eurobond issues, distribution of Euro commercial paper, assisting cross border mergers, acquisitions and sales, financial advisory, and investment services.
Forms of International Banking
Correspondent Bank Representative Offices Foreign Branches Subsidiaries and Affiliates Offshore Financial Centers
Social market economies
aims to combine free initiative and social welfare on the basis of a competitive economy
Public debt as a global problem. Problems related to public debt accumulation
are :
- Decreasing credibility -> Increasing risk premium
- Investors start demanding much higher compensation for the risk of holding the increasingly large amounts of public debt that authorities are going to issue
The reaction of the financial markets during public debt are
- High volatility of equity and bond markets
- Downgrades of country ratings exerted additional upward pressure on government bond yields
- The financial markets demanded higher risk premium- financing constraint
- Additionally - bank funding problems
- This created the need for policy measures to restore confidence
The public debt is your words is :
how much a country owes to lenders. These can include individuals, businesses, and even other governments.
Public debt usually only refers to the national debt.
public debt is the accumulation of annual budget deficits. It’s the result of years of government leaders spending more than they take in via tax revenues. A nation’s deficit affects its debt and vice-versa.
The capital asset pricing model – its utility in financial markets analysis
The model predicts rates of returns of respective instruments.
It assumes that the rate of return of each instrument (R) depends on the market rate of return (Rm) weighted by a risk factor β.
The Capital Asset Pricing Model (CAPM) describes the
relationship between systematic risk and expected return for assets, particularly stocks.
How CAPM IS used
widely used throughout finance for pricing risky securities and generating expected returns for assets given the risk of those assets and the cost of capital.
A principal advantage of CAPM is the objective nature of the estimated costs of equity that the model can yield.
But financial managers can use it to supplement other techniques and their own judgment in their attempts to develop a realistic and useful cost of equity calculations
HOW not to use CAPM
CAPM cannot be used in isolation because it necessarily simplifies the world of financial markets.
The formula for calculating the expected return of an asset given its risk is
ERi=Rf+Bi(ERm-Rf) where: ERi=expected return of investment Rf= risk-free rate Bi=beta of the investment (ERm-Rf)= market risk premium.
The pros and cons of euro area accession. Name pros
- Promoting Trade
- Encouraging Investment
- Mutual Support
The pros and cons of euro area accession.Name cons
• Rigid Monetary Policy
, the largest drawback of the euro is a single monetary policy that often does not fit local economic conditions. It is common for parts of the EU to be prospering, with high growth and low unemployment. In contrast, others suffer from prolonged economic downturns and high unemployment.
. Why high growth countries ought to have high-interest rates?
prevent inflation, overheating, and an eventual economic crash.
The low-growth country should lower interest rates
to stimulate borrowing
countries with high unemployment do not need to worry much about inflation because of the availability of the unemployed to produce more goods.
Unfortunately, interest rates cannot be simultaneously raised in the high growth country and lowered in the low growth country when they have a single currency like the euro.
