CHAPTER 11 International Banking and Money Market

International Finance 国际金融Notes to the ans wers:1、All the terms can be found in the text.2、The discussions can be attained by reading the original text.Chapter 1Answers:II. T T F F F T TIII. 1. reserve currency 2. appreciate 3. was pegged to 4. deficit 5. fixed exchange rates 6. floating exchange rates 7. depreciate 8. market forcesIV. 1. Confidence in the ability of the U.S. to redeem dollars for gold began to fall as potential claims against the dollar increased and U.S. gold reserves fell.2.Under the fixed exchange rate system, the value of the dollar was tied to gold through itsconvertibility in to gold at the U.S. Treasury, and other nations’ currencies were tied to the dollar by the maintenance of a fixed rate of exchange.3.IMF has adjusted its role in the exchange rate system in view of the development of thesituation.4.After the collapse of the Bretton Woods System, the task of ―rigorous monitoring‖theexchange rate policy of member countries fell on the shoulder of IMF.5.Under normal conditions the stabilizing operations were sufficient to contain short-runfluctuations in a currency’s price within the required bounds of 1% of par value and thereby maintain a system of fixed exchange rates.Chapter 2Answers:I. liquid, turnover, due to, hedge, cross trading, electronic broking, outright forwards,Over-the-counter, futures and options, derivatives, remainder.II.. 1. The fundamental changes occurred in post-war world economy. The international flow of commodities, capital and labor is intensifying, thus leading to integration of international markets.1.Often referred to as ―financial institutions with a soul‖, credit unions are member-ownedcooperatives that offer checking accounts, savings accounts, credit cards, and consumer loans.2.If you think the price of gold will rise, you can buy a most simple kind of financial derivativewhich is called ―futures‖. If by that time the price really goes up, then you make a gain. But if you make a wrong guess and the price declines, then you suffer a loss.3.Financial derivatives are financial commodities deriving from such spot market products asinterest rate or bond, foreign exchange or foreign exchange rate and sto ck or stock indexes.There are mainly three types of derivatives: futures, options and swaps, each of which involves a mix of financial contracts.panies and investment funds are using basic currency futures and currency options, onesthat are regarded as traditional hedging products for investors who want to protect their international assets from sharp gains and declines in currency prices.Chapter 3Answers：II. 1. deposit accounts 2. securitization 3. Deregulation 4. consolidation 5. portfolio 6. thrift institutions 7. listing 8. liquidity 9. banking supervision 10. Credit riskIII. 1. Depository institutions 2. commercial banks 3. credit analysis 4. working capital 5. consolidation 6. financing 7. moral hazard 8. Bank supervision and regulation 9. Credit risk 10. Liquidity riskIV. 1. If a bank’s base rate was below money market rates, a customer could borrow from a bank and lend these funds to the money market, thus making a profit on the deal.2.Financing of international trade is one of the basic functions of a commercial bank. Not onlydoes it father deposits (demand, time and savings accounts), but it also grants loans.3.If you have a credit card, you buy a car, eat a dinner, take a trip,a nd even get a haircut bycharging the cost to your account.4.As the central bank and under the leadership of the State Council, the People’s Bank ofChina will formulate and implement monetary policies, execute supervision and control power over the banking industry.5.One of major function of the central bank is the supervision of the clearing mechanis m. Areliable clearing mechanis m which can settle inter-bank transaction with high efficiency is crucial to a well-operated financial system.Chapter 4 Ans wers:II. 1．integrity 2. pretext 3. released 4. produce 5. facilities 6. obliged 7. alleging 8. Claims 9. cleared 10. deliveryIII. 1. in favor of 2. consignment 3. undertaking, terms and conditions 4. cleared 5. regardless of 6. obliged to 7. undervalue arrangement 8. on the pretext of 9. refrain from 10. hinges onIV. 1. The objective of documentary credits is to facilitate international payment by making use of the financial expertise and credit worthiness of one or more banks.2.In compliance with your request, we have effected insurance on your behalf and debited youraccount with the premium in the amount of $1000.3.When an exporter is trading regularly with an importer, he will offer open account terms.4.Exporters usually insist on payment by cash in advance when they are trading with oldcustomers.5.Cash in advance means that the exporter is paid either when the importer places his order orwhen the goods are ready for shipment.Chapter 5.II．1. b 2. c 3. c 4. a 5. b 6. b 7. a 8. cIII. 1. guaranteed 2. without recourse 3. defaults 4. on the buyer’s account 5. is equivalent to 6. in question 7. devaluation 8. validity 9. discrepancy 10. inconsistent withChapter 6Answers:II. 1. open account, creditworthiness 2. demand 3. draw on, creditor 4. protest 5. schedule, discrepancies 6. acceptance 7. drawee 8. guranteedIII. 1. collecting bank 2. tenor 3. the proceeds 4. protest 5. deferred payment 6. presentation 7. the maturity date 8. a document of title 9. the shipping documents 10. transshipmentIV. 1. Documentary collection is a method by which the exporter authorizes the bank to collect money from the importer.2.When a draft is duly presented for acceptance or payment but the acceptance or paymentis refused, the draft is said to be dishonored.3.In the international money market, draft is a circulative and transferable instrument.Endorsement serves to transfer the title of a draft to the transferee.4.A clean bill of lading is favored by the buyer and the banks for financial settlementpurposes.5.Parcel post receipt is issued by the post office for goods sent by parcel post. It is both areceipt and evidence of dispatch and also the basis for claim and adjustment if there is any damage to or loss of parcels.Chapter 7II. financing, discounting, factoring, forfaiting, without recourse, accounts receivable, factor, trade obligations, promissory notes, trade receivables, specialized.III. 1. a cash flow disadvantage 2. without recourse 3. negotiable instruments 4. promissory notes 5. profit margin 6. at a discount, maturity, credit risk 7. A bill of exchange, A promissory noteIV. 1. When a bill is dishonored by non-acceptance or by non-payment, the holder then has an immediate right of recourse against the drawer and the endorsers.2.If a bill of lading is made out to bearer, it can be legally transferred without endorsement.3.The presenting bank should endeavor to ascertain the reasons non-payment ornon-acceptance and advise accordingly to the collecting bank.4.Any charges and expenses incurred by banks in connection with any action for protection o fthe goods will be for the account of the principal.5.Anyone who has a current account at a bank can use a cheque.Chapter EightStructure of the Foreign Exchange Market外汇市场的构成1. Key Terms1）foreign exchange：―Foreign exchange‖ refers t o money denominated in the currency of another nation or group of nations.2）payment“payment”is the transmission of an instruction to transfer value that results from a transaction in the economy.3）settlement―settlement‖ is the final and uncondit ional transfer of the value specified in a payment instruction.2. True or False1) true 2) true 3) true 4) true1)Tell the reasons why the dollar is the market's most widely tradedcurrency?key points: U.S.A economic background; the leadership of USD in the world economy ; the role it plays in investment , trade, etc.2)What kind of market is the foreign exchange market?Make reference to the following parts:（8.7 The Market Is Made Up of An International Network of Dealers）Chapter 9Instruments交易工具1. Key Terms1) spot transactionA spot transaction is a straightforward (or ―outright‖) exchange of one currency for another. The spot rate is the current market price, the benchmark price.Spot transactions do not require immediate settlement, or payment ―on the spot.‖ By convention, the settlement date, or ―value date,‖is the second business day after the ―deal date‖ (or ―trade date‖) on which the transaction is agreed to by the two traders. The two-day period provides ample time for the two parties to confirm the agreement and arrange the clearing and necessary debiting and crediting of bank accounts in various international locations.2) American termsThe phrase ―American terms‖means a direct quote from the point of view of someone located in the United States. For the dollar, that means that the rate is quoted in variable amounts of U.S. dollars and cents per one unit of foreign currency (e.g., $1.2270 per Euro).3) outright forward transactionAn outright forward transaction, like a spot transaction, is a straightforward single purchase/ sale of one currency for another. The only difference is that spot is settled, or delivered, on a value date no later than two business days after the deal date, while outright forward is settled on any pre-agreed date three or more business days after the deal date. Dealers use the term ―outright forward‖ to make clear that it is a single purchase or sale on a future date, and not part of an ―FX swap‖.4) FX swapAn FX swap has two separate legs settling on two different value dates, even though it is arranged as a single transaction and is recorded in the turnover statistics as a single transaction. The two counterparties agree to exchange two currencies at a particular rate on one date (the ―near date‖) and to reverse payments, almost always at a different rate, on a specified sub sequent date (the ―far date‖). Effectively, it is a spot transaction and an outright forward transaction going in opposite directions, or else two outright forwards with different settlement dates, and going in opposite directions. If both dates are less than one month from the deal date, it is a ―short-dated swap‖; if one or both dates are one month or more from the deal date, it is a ―forward swap.‖5) put-call parity―Put-call parity‖says that the price of a European put (or call) option can be deduced from the price of a European call (or put) option on the same currency, with the same strike price and expiration. When the strike price is the same as the forward rate (an ―at-the-money‖forward), the put and the call will be equal in value. When the strike price is not the same as the forward price, the difference between the value of the put and the value of the call will equal the difference in the present values of the two currencies.2. True or False1) true 2) true 3) true3. Cloze1) Traders in the market thus know that for any currency pair, if the basecurrency earns a higher interest rate than the terms currency, the currency will trade at a forward discount, or below the spot rate; and if the base currency earns a lower interest rate than the terms currency, the base currency will trade at a forward premium, or above the spot rate. Whichever side of the transaction the trader is on, the trader won't gain (or lose) from both the interest rate differential and the forward premium/discount. A trader who loses on the interest rate will earn the forward premium, and vice versa.2) A call option is the right, but not the obligation, to buy the underlyingcurrency, and a put option is the right, but not the obligation, to sellthe underlying currency. All currency option trades involve two sides—the purchase of one currency and the sale of another—so that a put to sell pounds sterling for dollars at a certain price is also a call to buy dollars for pounds sterling at that price. The purchased currency is the call side of the trade, and the sold currency is the put side of the trade. The party who purchases the option is the holder or buyer, and the party who creates the option is the seller or writer. The price at which the underlying currency may be bought or sold is the exercise , or strike, price. The option premium is the price of the option that the buyer pays to the writer. In exchange for paying the option premium up front, the buyer gains insurance against adverse movements in the underlying spot exchange rate while retaining the opportunity to benefit from favorable movements. The option writer, on the other hand, is exposed to unbounded risk—although the writer can (and typically does) seek to protect himself through hedging or offsetting transactions.4. Discussions1)What is a derivate financial instrument? Why is traded?2)Discuss the differences between forward and futures markets in foreigncurrency.3)What advantages do foreign currency futures have over foreigncurrency options?4)What is meant if an option is ―in the money‖, ―out of the money‖,or ―atthe money‖?5)What major international contracts are traded on the ChicagoMercantile Exchange ? Philadelphia Stock Exchange?Chapter 10Managing Risk in Foreign Exchange Trading外汇市场交易的风险管理1. Key Terms1) Market riskMarket risk, in simplest terms, is price risk, or ―exposure to (adverse)price change.‖ For a dealer in foreign exchange, two major elements of market risk are exchange rate risk and interest rate risk—that is, risks of adverse change in a currency rate or in an interest rate.2) VARVAR estimates the potential loss from market risk across an entire portfolio, using probability concepts. It seeks to identify the fundamental risks that the portfolio contains, so that the portfolio can be decomposed into underlying risk factors that can be quantified and managed. Employing standard statistical techniques widely used in other fields, and based in part on past experience, VAR can be used to estimate the daily statistical variance, or standard deviation, or volatility, of the entire portfolio. On the basis of that estimate of variance, it is possible to estimate the expected loss from adverse price movements with a specified probability over a particular period of time (usually a day).3) credit riskCredit risk, inherent in all banking activities, arises from the possibility that the counterparty to a contract cannot or will not make the agreed payment at maturity. When an institution provides credit, whatever the form, it expects to be repaid. When a bank or other dealing institution enters a foreign exchange contract, it faces a risk that the counterparty will not perform according to the provisions of the contract. Between the time of the deal and the time of thesettlement, be it a matter of hours, days, or months, there is an extension of credit by both parties and an acceptance of credit risk by the banks or other financial institutions involved. As in the case of market risk, credit risk is one of the fundamental risks to be monitored and controlled in foreign exchange trading.4) legal risksThere are legal risks, or the risk of loss that a contract cannot be enforced, which may occur, for example, because the counterparty is not legally capable of making the binding agreement, or because of insufficient documentation or a contract in conflict with statutes or regulatory policy.2. True or False1)True 2) true3. Translation1) Broadly speaking, the risks in trading foreign exchange are the same asthose in marketing other financial products. These risks can be categorized and subdivided in any number of ways, depending on the particular focus desired and the degree of detail sought. Here, the focus is on two of the basic categories of risk—market risk and credit risk (including settlement risk and sovereign risk)—as they apply to foreign exchange trading. Note is also taken of some other important risks in foreign exchange trading—liquidity risk, legal risk, and operational risk2) It was noted that foreign exchange trading is subject to a particular form ofcredit risk known as settlement risk or Herstatt risk, which stems in part from the fact that the two legs of a foreign exchange transaction are often settled in two different time zones, with different business hours. Also noted was the fact that market participants and central banks have undertaken considerable initiatives in recent years to reduce Herstatt risk.4. Discussions2)Discuss the way how V AR works in measuring and managing marketrisk?3)Why are banks so interested in political or country risk?4)Discuss other forms of risks which you know in foreign exchange. Chapter 11The Determination of Exchange Rates汇率的决定1. Key Terms1) PPPPurchasing Power Parity (PPP) theory holds that in the long run, exchange rates will adjust to equalize the relative purchasing power of currencies. This concept follows from the law of one price, which holds that in competitive markets, identical goods will sell for identical prices when valued in the same currency.2) the law of one priceThe law of one price relates to an individual product. A generalization of that law is the absolute version of PPP, the proposition that exchange rates will equate nations' overall price levels.3) FEER―fundamental equilibrium exchange rate,‖ or FEER,envisaged as the equilibrium exchange rate that would reconcile a nation's internal and external balance. In that system, each country would commit itself to a macroeconomicstrategy designed to lead, in the medium term, to ―internal balance‖—defined as unemployment at the natural rate and minimal inflation—and to ―external balance‖—defined as achieving the targeted current account balance. Each country would be committed to holding its exchange rate within a band or target zone around the FEER, or the level needed to reconcile internal and external balance during the intervening adjustment period.4) monetary approachThe monetary approach to exchange rate determination is based on the proposition that exchange rates are established through the process of balancing the total supply of, and the total demand for, the national money in each nation. The premise is that the supply of money can be controlled by the nation's monetary authorities, and that the demand for money has a stable and predictable linkage to a few key variables, including an inverse relationship to the interest rate—that is, the higher the interest rate, the smaller the demand for money.5) portfolio balance approachThe portfolio balance approach takes a shorter-term view of exchange rates and broadens the focus from the demand and supply conditions for money to take account of the demand and supply conditions for other financial assets as well. Unlike the monetary approach, the portfolio balance approach assumes that domestic and foreign bonds are not perfect substitutes. According to the portfolio balance theory in its simplest form, firms and individuals balance their portfolios among domestic money, domestic bonds, and foreign currency bonds, and they modify their portfolios as conditions change. It is the process of equilibrating the total demand for, and supply of, financial assets in each country that determines the exchange rate.2. True or False1) true 2) true3. Cloze1）PPP is based in part on some unrealistic assumptions: that goods are identical; that all goods are tradable; that there are no transportationcosts, information gaps, taxes, tariffs, or restrictions of trade; and—implicitly and importantly—that exchange rates are influenced only byrelative inflation rates. But contrary to the implicit PPP assumption,exchange rates also can change for reasons other than differences ininflation rates. Real exchange rates can and do change significantly overtime, because of such things as major shifts in productivitygrowth, advances in technology, shifts in factor supplies, changes inmarket structure, commodity shocks, shortage, and booms.2）Each individual and firm chooses a portfolio to suit its needs, based on a variety of considerations—the holder's wealth and tastes, the level ofdomestic and foreign interest rates, expectations of future inflation,interest rates, and so on. Any significant change in the underlying factorswill cause the holder to adjust his portfolio and seek a new equilibrium.These actions to balance portfolios will influence exchange rates.4. Discussions1）How does the purchasing power parity work?2）Describe and discuss one model for forecasting foreign exchange rates.3）Make commends on how good are the various approaches mentioned in the chapter.4）Central banks occasionally intervene in foreign exchange markets. Discuss the purpose of such intervention. How effective is intervention?Chapter 12The Financial Markets金融市场1. Key Terms1）money marketThe money market is really a market for short-term credit, or the option to use someone else's money for a period of time in return for the payment of interest. The money market helps the participants in the economic process cope with routine financial uncertainties. It assists in bridging the differences in the timing of payments and receipts that arise in a market economy.2）capital marketMarkets dealing in instruments with maturities that exceed one year are often referred to as capital markets.3）primary marketThe term ―primary market‖ applies to the original issuance of a credit market instrument. There are a variety of techniques for such sales, including auctions, posting of rates, direct placement, and active customer contacts by a salesperson specializing in the instrument4） secondary marketOnce a debt instrument has been issued, the purchaser may be able to resell it before maturity in a ―secondary market.‖ Again, a number of techniques are available for bringing together potential buyers and sellers of existing debt instruments. They include various types of formal exchanges, informal telephone dealer markets, and electronic trading through bids and offers on computer screens. Often, the same firms that provide primary marketing services help to create or ―make‖ secondary markets.5）RPsIn addition to making outright purchases and sales in the secondary market, entities with money to invest for a brief period can acquire a security temporarily, and holders of debt instruments can borrow short term by selling securities temporarily. These two types of transactions are repurchase agree-ments (RPs) and reverse RPs,respectively. In the wholesale market, banks and government securities dealers offer RPs at competitive rates of return by selling securities under contracts providing for their repurchase from one day to several months later6）BAs 7）CDs (reference to 13.1)8） EurodollarEurodollars are U.S. dollar deposits at banking offices in a country other than the United States.9） EurobankEurobanks—banks dealing in Eurodollar or some other nonlocal currency deposits, including foreign branches of U.S. banks— originally held deposits almost exclusively in Europe, primarily London. While most such deposits are still held in Europe, they are also held in such places as the Bahamas, Bahrain, Canada, the Cayman Islands, Hong Kong, Singapore, and Tokyo, as well as other parts of the world.10）LIBOR (reference to 13.2.2 Certificates of Deposit)London inter-bank offer rate11）mortgage-backed securities12）Eurobond market (details make reference to13.3.3 )The Eurobond market, centered in London, is an offshore market in intermediate- and long-term debt issues. It serves as a source of capital for multinational corporations and for foreign governments. It developed after the United States instituted the interest equalization tax in 1963 to stem capital outflows inspired by relatively low U.S. interest rates.2. True or False1) true 2) true 3) true3. Discussions1) Describe the characteristics of Interest Rate Swap and the role of it in thebank-related financial market.2) What risks are encountered in the swaps markets?3) Discuss one or two specific examples of derivative products and their use.4. Translations1) Markets dealing in instruments with maturities that exceed one year are often referred to as capital markets, since credit to finance investments in new capital would generally be needed for more than one year. The time division is arbitrary. A long-term project can be started with short-term credit, with additional instruments may need to be renewed before a project is completed. Debt instruments that differ in maturity share other characteristics. Hence, the term ―capital market‖ could be –and occasionally is applied to some shorter maturity transactions.2) The secondary market for Treasure securities consists of a network of dealers, brokers, and investors who effect transactions either by telephone or electronically. Telephone trades are generally between dealers and their customers. Electronics trading is arranged through screen-based systems provided by some of the dealers to their customers. It allows selected trades to take place without a conversation. When dealers trade with each other, they generally use brokers. Brokers provide information on screen, but the final trades are made bytelephone.Chapter 13Concepts of Financial Assets Value金融资产价值的概念1. Key Terms1) absolute measure of valueAn absolute measure of value is used when one must compare it to a nominal amount: purchase price, amount to invest, target sum of money to raise2) relative measure of valueA relative measure of rate of return is more convenient to use when one wishes to compare one financial asset to a set of numerous alternative assets. A rate of return is the most commonly used relative measure of value.3) discountingFuture benefits must be discounted (or converted) to their present (or today's) value, before they are summed. Discounting is part of the study of time value of money, or actuarial mathematics, and a complete treatment of it can be found in specialized textbook.4) time value of moneyTime value of money studies how amounts of money are made equivalent over time. Converting amounts today into their future equivalent consists in adding interest to principal, i.e. compounding. Converting amounts in the future into today's equivalent consists of charging an interest, i.e. discounting. Thus, discounting is the exact inverse of compounding.5) FV 6) PV 7) annuity8) short term securitiesShort term securities (i.e. securities with maturity less than one year) are sold at a discount (i.e. nominal value less the interest to be earned over the remaining number of days to maturity). There is no coupon, and no additional benefits such as conversion right, but there may be a penalty for early redemption in the case of some bank certificates of deposit.9) P/E ratio (make reference to 15.5.3 --Earnings Multiple or P/E Ratio)Another approach which is used as a short-cut by a large number of investors, is the earnings multiple. It is sometimes referred to as earningsmultiplier, and it is most commonly known as price-to-earnings or P/E ratio. In many instances, the approach, rather than being an oversimplification, can be an improvement over the previous format. In its most common presentation, the idea is that the price P of a share should be a multiple m of its earnings per share E. The multiple m is an industry average because it is assumed that all companies in an industry face similar marketing, technological and resource challenges, and thus, should have similar organizational and production patterns.10) intrinsic valueintrinsic value, or difference between market price of the underlying stock and strike price (which is also known as exercise price because it is the price at which an option holder can buy from or sell to the option writer the underlying stock through the options exchange)。

KEY OF INTERNATIONAL SETTLEMENTChapter 11.Put the following phrases into English2.Put the following sentences into English(1)国际结算涉及有形贸易和无形贸易，外国投资，从其他国家借贷资金，等等。

The international settlement involves tangible trades, intangible trades, foreign investments, funds borrowed from or lent to other countries and so on.(2)许多银行注重发展国际结算和贸易融资的业务。

Many banks have focused on their business of international settlement and trade finance.(3)大多数国际间的支付来自于世界贸易。

Most of the international payments originate from transactions in the world trade.(4)一般来说，国际结算的方式分为三类：汇款、托收和信用证。

Usually the international settlement is divided into three broad categories: remittance, collection and letter of credit.3. True or False1)International payments and settlements are financial activities conducted inthe domestic country. (F)2)Fund transfers are processed and settled through certain clearing systems.(T)3)Using the SWIFT network, banks can communicate with both customers andcolleagues in a structured, secure, and timely manner.(T)4)SWIFT can achieve same day transfer.(T)4.Multiple Choice1)SWIFT is __B__A.in the united statesB. a kind of communications belonging to TT system for interbank’s fundtransferC.an institution of the United NationsD. a governmental organization2)SWIFT is an organization based in __A___A.BrusselsB.New YorkC.LondonD.Hong Kong3) A facility in fund arrangement for buyers or sellers is referred to __A___A.trade financeB.sale contractC.letter of creditD.bill of exchange4)Fund transfers are processed and settled through __C___A.banksB.SWIFTC.clearing systemD.telecommunication systems5)__C__is the reason why international trade first began.A.Uneven distribution of resourcesB.Patterns of demandC.Economic benefitsparative advantages5. Answer the following questions1)Where are the medium of exchange originated from?Tracing back the history of international settlement, the medium of exchange originated from coins to notes.2)What will inevitably lead to under the international political, economic andcultural exchanges?The international political, economic and cultural exchange inevitably leads to credits and debts owed by one country to another.3)Why do banks focus on the development of the businesses of internationalsettlement?Banks focus more and more on the development of the businesses because it isa major resource of profits.4)What will banks do to meet the higher and higher demand of the internationalmarket?Banks need to develop innovative products and deliver the best services possible in whatever way they can.Chapter 21.Put the following phrases into English2.Put the following sentences into English(1)用于国际结算的货币是可兑换的货币。

BIS QUARTERLY REVIEWNovember 2000INTERNATIONAL BANKING AND FINANCIAL MARKET DEVELOPMENTSBANK FOR INTERNATIONAL SETTLEMENTSMonetary and Economic DepartmentBasel, SwitzerlandCopies of publications are available from:Bank for International SettlementsInformation, Press & Library ServicesCH-4002 Basel, SwitzerlandFax: +41 61 / 280 91 00 and +41 61 / 280 81 00This publication is available on the BIS website ().©Bank for International Settlements 2000. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated.ISSN 1012-9979Also published in French, German and Italian.Contents*I.Overview of global financial developments:Markets confront shifting expectations (1)Equity markets harbour renewed doubts about earnings (3)Apprehension spills over into corporate bonds and emerging market debt (4)Liquidity in fixed income markets stabilises (5)The depreciating euro poses a quandary for markets and policymakers (5)Rising oil prices add to nervousness (7)Borrowers turn to convertible bonds, floating rate notesand syndicated loans (8)Box: Credit spreads and equity market volatility (10)II.Highlights of international financing1. The international banking market (14)Interbank lending slows but purchases of bank securitiesremain near record levels (15)Flows to US non-banks surpass those to euro area borrowers (15)Japanese banks return to the international banking market (16)Box: Syndicated credits in the third quarter of 2000 (17)Claims on developing countries continue to contract (18)Deposits by developing countries soar (20)Box: International bank and securities financing in Africa (22)2.The international debt securities market (24)Agencies issue heavily while other borrowers pull back (25)The strong US dollar attracts increased issuance (27)Floating rate issuance continues to grow (28)Developing countries concentrate on debt exchanges (29)Box: Bond issues by European telecommunications companies (30)3. Derivatives markets (32)Exchange-traded instruments: slowdown highlightsgrowing divergence with OTC market (32)Over-the-counter instruments: continued market expansion (34)Box: Recent developments in the credit derivatives market (37)III.Special feature: Market liquidity and stress:selected issues and policy implications (38)What is market liquidity? (38)Why do we care (increasingly) about market liquidity? (39)What determines market liquidity under stress? (42)*Queries concerning the contents of this commentary in general should be addressed to Eli Remolona (Tel. +41 61 280 8414, e-mail: eli.remolona@). Queries about specific parts should be addressed to the authors, whose names appear at the head of each part. Queries concerning the statistics should be addressed to Rainer Widera (Tel. +41 61 280 8425, e-mail: rainer.widera@).iWhat can be done to promote robust market liquidity? (45)Box: Forex trading volumes, volatility and spreadsin emerging market countries (49)IV.Special feature: Size and liquidity of government bond markets (52)The search for liquidity (53)Does size matter for liquidity? (53)Creating size through lumping (55)The trade-off between size and crowding-out (56)Liquidity during the transition in shrinking and growing markets (58)Box: Composition of US dollar foreign exchange reserves by instrument (59)V.Special feature: Hedge funds (61)Structure, characteristics and attractiveness of hedge funds (61)Hedge funds and episodes of financial market turmoil (64)The 1992 ERM crisis (65)The Asian currency crises of 1997, and beyond (65)The near-collapse of LTCM (67)The policy response (68)Hedge funds post-1998: dinosaurs or Darwinian survivors? (69)V.Structural and regulatory developments (72)Initiatives and reports concerning financial institutions (72)Initiatives and reports concerning financial markets (73)Initiatives and reports concerning market infrastructure (74)Statistical annexList of recent BIS publicationsiiBIS Quarterly Review , November 20001Benjamin H Cohen(+41 61) 280 8921benjamin.cohen@ Eli M Remolona (+41 61) 280 8414eli.remolona@I. Overview of global financial developments:Markets confront shifting expectationsFrom the summer to early autumn of 2000, financial markets moved from a climate of cautious optimism to one of growing apprehension. In July and August, macroeconomic data releases and policy measures signalled a more or less benign financial environment. In September, however, as macroeconomic and corporate earnings forecasts were revised downwards and oil prices rose, market participants suddenly began to show signs of nervousness. In the equity market, a brief rally in August was decisively reversed in September and October. Apprehension spread to corporate bonds, which experienced wider credit spreads and increased scrutiny of highly leveraged issuers, including telecommunications firms. These events were accompanied by a resumption of the euro’s weakening trend, which continued until the end of October. Among other things, this trend appeared to reflect renewed market concerns about growth prospects in the euro area.To some degree, financial market jitters have reflected continued attempts to find equilibrium in a situation of rapid technological change and uncertainty about the persistence of recent high rates of productivity growth in the United States. Equity valuations have tended to rely on optimistic expectations about prospects for continued profit growth, which for a time were reinforced by earnings reports. Once earnings began showing signs of slowing and prominent credit downgrades began to be made, however, equity and debt valuations became vulnerable to sharp revisions of expectations. The strength of the dollar against the euro and other currencies has resulted at least in part fromGraph I.1Activity in cross-border bank loans and securities marketsIn billions of US dollars-30003006009697989900Announcements-3003006009697989900Effective financing: total ¹ Includes both money market instruments and long-term bonds and notes. ² Exchange rate adjusted changes in cross-border bank loans.Data for bank loans are available only up to 2000 Q2. 3 Gross issues minus repayments.Sources: Bank of England; Capital DATA; Euroclear; International Securities Market Association (ISMA); Thomson Financial Securities Data; national data; BIS.BIS Quarterly Review , November 20002Graph I.2Global fixed income and equity marketsWeekly averages2468199819992000Ten-year yields (swap rates in %)0100200300400199819992000Equity indices (end-December 025507510019992000S&P 500 earnings surprises (%)¹ Prior to 1999, Deutsche mark. 2 Dow Jones index of European stocksSources: Bloomberg; Datastream; national data.long-term capital flows from overseas investors into the United States driven by strong confidence in future returns. These flows may also have reflected a complementary scepticism about the ability of Europe and other regions to achieve similar levels of productivity growth through structural reforms.The adverse conditions in financial markets led some firms to defer their borrowing plans. Financial institutions, the largest group of borrowers, reduced their net issuance of international debt securities in the third quarter by 27% relative to the previous quarter. Other borrowers shifted from issuing long-term fixed rate bonds to floating rate or convertible instruments, or went to the syndicated loan market. Nonetheless, the aggregate level of fund raising was maintained, in part because a third group of issuers were relatively less sensitive to concerns about credit risks. In particular, highly rated state agencies and government-sponsored enterprises stepped up their issuance to make up for the absence of other borrowers in the market for long-term fixed rate securities.Despite investors’ increased sensitivity to credit risk, developing country borrowers were able to maintain the recent moderate pace of debt issuance during the third quarter. Latin American and Caribbean countries issued $6.9 billion of international debt securities net of repayments and continued to refinance their Brady debt with cheaper issues at longer maturities. However, spreads on emerging market bond issues widened sharply in October, after more than a year during which they had narrowed appreciably. Equity markets and exchange rates in some countries, particularly in East Asia, were adversely affected by worries about rising oil prices, political instability and the uncertain progress of reform measures.BIS data for the second quarter show that the role of the international banking market continued to accommodate the shift of borrowers to the securities market (Graph I.1), both through banks’ own large-scale purchases and through the provision of bridge loans to borrowers who would subsequently refinance these loans by issuing long-term securities. Evidence from the syndicated loan market shows that telecommunications firms were among the principal users of bridging finance in the first quarter.These firms stepped up their issuance of securities in the second quarter, before the rise in credit spreads in the third sent them back to the syndicated loan market.BIS Quarterly Review , November 20003Equity markets harbour renewed doubts about earningsThe sell-off in global equity markets, which began in late March but showed signs of a reversal over the summer, regained momentum in September and October (Graph I.2, middle panel). The sell-off was concentrated in high-technology stocks. Over the five and a half months from mid-March to end-August, the broad-based S&P 500 index and the Europe-based Dow Jones STOXX index both experienced significant swings but ended up virtually unchanged in local currency terms, while the Nasdaq and Tokyo (TOPIX) indices fell by roughly 15%. A brief rally in August was decisively reversed in early September when analysts revised downwards their earnings projections for semiconductor manufacturers and wireless equipment makers.In October, Nasdaq prices fell by a further 8% as disappointing earnings announcements accumulated,mostly from technology firms. Despite the March-April correction, market valuations had in many cases continued to reflect extremely optimistic forecasts of future earnings growth. Thus, it was frequently the case that a company would report healthy current earnings growth but encounter a negative market response because it did not offer a sufficiently optimistic outlook for the future. The third quarter was also the second in a row to record a decline in the number of companies reporting earnings that exceeded forecasts (Graph I.2, right-hand panel). Because of the interconnected nature of the supply chain and the difficulties of forecasting future growth patterns in high-tech industries,reports of slower sales or investment growth in one sector often had a sharply negative impact on earnings forecasts for other sectors. Investors were also worried about the impact on corporate earnings of a potential growth slowdown in Europe, as well as about the effect of the weak euro on the income of those firms that had not adequately hedged their exposures to foreign exchange risk.The downward revisions in revenue forecasts for high-tech companies and the accompanying decline in their stock prices led investors in East Asia to reduce their expectations about the prospects for the electronics industries based in that region. These expectations added to the woes of those Asian countries that depend heavily on electronics exports, some of which also happened to have stock markets already weakened by other factors. The Seoul market, for example, had suffered from a perception that efforts at financial and corporate reform were faltering, and the Taipei market from political problems. The Seoul market fell 25% in the third quarter and the Taipei market 23%. As the Nasdaq index continued to decline in October, the Seoul market fell a further 16% and the Taipei market a further 13%, that is, by even more than the Nasdaq index.Graph I.3Credit spreads over 10-year swap ratesWeekly averages, in basis points-50050100150199920006001,2001,800199819992000¹ Merrill Lynch US High Yield Master II. ² JP Morgan's Emerging Market Bond Index (EMBI+) spread over 10-year US swap rate.³ Euro/ECU denominated Merrill Lynch high-yield bond index.Sources: Bloomberg; Datastream, Moody's; national data.BIS Quarterly Review , November 20004Graph I.4Liquidity in government bond marketsIn basis points-40-20020199819992000On-the-run liquidity premia¹4812199819992000Yield curve arbitrage indicator²¹ Static spread of the 10-year on-the-run government bond over a zero coupon yield curve. ² Standard deviation of static spreads of all bonds over a zero coupon yield curve (excluding callable bonds).Sources: Datastream; BIS calculations.Apprehension spills over into corporate bonds and emerging market debtConcerns about the health of the corporate sector also resulted in wider corporate credit spreads (Graph I.3). The spread of the Merrill Lynch index of triple-A bond yields over 10-year US dollar swaps rose from virtually zero in early August to nearly 20 basis points in early October, while comparable triple-B spreads rose from 100 basis points to 140. The BBB spread had also widened in February and March, at a time when the market’s attention was focused on the debt buyback strategies of the US Treasury and on the status of US agency paper, but this spread had then stabilised throughout the spring and early summer. Spreads on AAA issues had been more or less constant since autumn 1999. The renewed widening of spreads in the third quarter of 2000 may have reflected concerns about increased leverage, particularly in investment-intensive sectors such as telecommunications.1 The higher spreads in the corporate bond market mirrored the tighter credit standards that, according to a survey by the Federal Reserve, have recently been imposed by bank lending officers in the United States. More generally, both volatile equity markets and higher credit spreads reflected increasing uncertainty over asset values.2 Declines in the overall level of yields for government bonds in the United States and Europe reinforce the picture of a flight to safety among investors.Sensitivity to credit risk also extended to emerging market debt. After narrowing steadily in the previous 12 months, spreads widened sharply in October. A tiering of risk in this market was evident in the fact that the most pronounced widening of spreads was experienced by such countries as Argentina, Brazil, the Philippines and Turkey, countries which had already been facing the widest spreads among the major borrowing countries in their respective regions. Emerging economies that are oil importers were also considered to be more vulnerable than the developed economies to higher oil prices. The problems experienced by the Argentine economy, which led to the announcement of a support package by the International Monetary Fund in November, may have contributed to a further 1See the box “Bond issues by European telecommunications companies” on pages 30-31.2 See the box “Credit spreads and equity market volatility” on pages 10-13.BIS Quarterly Review , November 20005worsening of sentiment towards emerging market debt in the fourth quarter. Nevertheless, as discussed below, capital markets continued to be fairly receptive to debt issues from the developing world for most of the third quarter.Liquidity in fixed income markets stabilisesIn contrast to earlier episodes of widening credit spreads, recent credit concerns about non-financial companies have not been associated with a decline in market liquidity or with worries about the health of the financial sector. The spreads of interest rate swap yields over those on government issues such as US Treasuries and German bunds were more or less unchanged over the period.3 Other closely watched indicators of illiquidity, such as the spreads between on-the-run and off-the-run issues, have been stable or declining (Graph I.4). Stable swap and liquidity spreads are also a sign that, for the moment at least, fixed income markets have adapted to the declining supply of new government issues, after being preoccupied with this question for much of the first half of the year.4 Another sign of the market’s ability to adapt to the new supply conditions has been the fact that yields on 30-year bonds now once again exceed 10-year yields in the United States, after being below them for much of the year. The 30-year yield had been particularly affected by shifting market expectations regarding the path of future supply. At the same time, yields in the two- to 10-year section of the yield curve have fallen significantly below those at the very short end, reflecting downward revisions to the expected course of policy rates and producing an unusual U-shaped term structure.The depreciating euro poses a quandary for markets and policymakersDuring the period under review, the steady weakening of the euro against the US dollar and other currencies raised questions about prospects for price stability in the euro zone and about the market’sGraph I.5Growth forecasts and economic surprises-3-2-10119992000Growth differentials (EMU-US)¹-3-1.501.5319992000Announcement surprises²¹ Difference between EMU area and US GDP forecasts. ² Actual less expected normalised by the standard deviation.Sources: Bloomberg; Consensus Economics; national data.3See the special feature “Market liquidity and stress: selected issues and policy implications” on pages 38-48 for a furtherdiscussion of the relationship between liquidity and credit risk.4See the special feature “Size and liquidity of government bond markets” on pages 52-58 for a discussion of recent trends in government bond supply and their implications.BIS Quarterly Review , November 20006Graph I.6Exchange rates and commodity prices708090100110120130199819992000Exchange rates (1998 = 100)050100150200250199819992000Commodity prices (1998 = 100)Commodity Index.Sources: Datastream; Reuters; BIS calculations.confidence in the European economy. Discussion of causes of the euro’s weakness has focused on the relative growth outlook across the developed economies and on the flow of capital into the United States. The recent bout of weakness was precipitated by the release in August of the closely watched Ifo survey of German business sentiment (Graph I.5). Similar surveys from other euro area countries and the September release of the Ifo survey continued to indicate sluggish economic prospects, while higher inflation figures raised the possibility of further tightening moves by the European Central Bank. More recent releases, such as industrial production data for various countries and the producers’confidence index from the European Commission, suggested a more mixed picture for Europe. Data for the US economy, such as preliminary figures suggesting annualised growth of 2.7% in the third quarter, also indicated a mild slowdown, but these were at first treated positively by financial markets since they supported the optimistic scenario of a “soft landing”.During 1999, some market observers cited the relatively high level of euro-denominated debt issuance as a factor contributing to the euro’s weakness that year. Data for the third quarter of 2000 indicate that issuers have recently begun to revert to their earlier pattern of issuing in the stronger currency. In particular, as has tended to be the case in past periods of dollar strength, the share of dollar-denominated securities in international issuance was relatively high. This shift may in turn remove one of the factors that has been contributing to the euro’s weakening trend.While the euro’s gradual depreciation during 1999 and the early part of 2000 had been seen by market participants as having helped to promote a needed recovery in European output, its more recent weakness against the other major currencies raised fears of rising euro zone inflation, a continued tightening of monetary policy by the ECB and an associated decline of confidence, with negative consequences for growth. After trading in a narrow range of 0.94-0.95 to the US dollar and 100-102 to the Japanese yen throughout June and July, the euro resumed its fall in late July (Graph I.6). By mid-September it had reached $0.85 and ¥90. Concerted intervention by the ECB, the Federal Reserve, the Bank of Japan, the Bank of Canada and the Bank of England on 22 September temporarily supported the euro at $0.87 and ¥95 up to early October. The probability distributions implied by risk reversal prices indicate that, after the intervention, short-run market expectations about the dollar/euro rate returned more or less to where they had stood at the end of August (Graph I.6).The euro continued to weaken during most of October, even against economically linked currenciessuch as the Swiss franc and pound sterling, before recovering somewhat towards the end of the month accompanied by a new round of ECB intervention.Ordinarily, rising interest rates in Europe might have been expected to support the euro, particularly when US rates have been flat or declining. While the ECB’s summer tightening moves had already been priced into forward interest rates and thus did not lead to a revision of market expectations, the weakening US growth outlook led to a downward shift in the near-term path of forward US dollar rates. As of end-October, a neutral or slightly looser monetary policy stance by the Fed had been priced into the yield curve up to two years (Graph I.7). Nevertheless, and despite the decline in US equity prices since March, the promise of high returns in US equity markets appears to have continued to support the dollar.5 The strong dollar has in turn been perceived as a positive factor for the US economy, in that it has helped to dampen inflationary pressures in conditions of strong domestic demand. Conversely, the weak euro has been seen to have exacerbated inflationary pressures and to have signalled waning market confidence regarding growth prospects in the euro area.The Japanese yen has also strengthened against the euro, trading in a range of ¥105-110 to the dollar,with the help of data indicating 1.0% GDP growth in the second quarter and a rise in the Tankan business sentiment index in September. However, confidence in a strong Japanese recovery was restrained by the persistent weakness of the financial sector, which was further shaken by the failure of a large retailer in July and two insurance companies in October.Rising oil prices add to nervousnessAnother factor clouding the outlook for policymakers and market participants has been the 18-month long increase in crude oil prices (Graph I.6, right panel). In US dollar terms, most of the increase in oilGraph I.7Three month implied forward rates66.577.509.0003.0109.0103.0209.02Eurodollar4.555.5609.0003.0109.0103.0209.02Euro libor00.511.509.0003.0109.0103.0209.02EuroyenEach curve shows the three-month implied forward rates for futures contracts commencing on the dates shown on the horizontal axis, as observed on the date listed in the legend. The forward rates are derived from interest rate deposit contracts of different maturities.Source: Bloomberg.5For a discussion of the interactions between stock market returns, equity flows and exchange rates, see Henri J Bernard and Gabriele E B Galati, “Special feature: The co-movement of US stock markets and the dollar” in the August 2000issue of the BIS Quarterly Review.prices had already occurred in 1999, with prices rising about two and a half times from January 1999 to March 2000, in line with stronger growth in the developed economies and the revival of demand from the emerging economies. While dollar prices fluctuated widely in the spring and summer of 2000, they returned to their March levels in August before rising again in the autumn as the situation in the Middle East worsened. For European countries, the weak euro has exacerbated the effect of the oil price increases. In euro terms, oil prices more than tripled from January 1999 to March 2000, and rose by an additional 25% between March and early October 2000. High ad valorem taxes on petrol in European countries have magnified the ultimate price impact for consumers. These factors may have accounted both for the wave of petrol-related strikes and protests in several European countries in September, and for the perception that the ECB may respond more aggressively to energy price inflation than the Fed. However, it is also widely recognised that oil represents a smaller fraction of consumption throughout the developed world today than it did at the time of the 1970s price shocks, so that the overall inflationary and growth impact is likely to be less pronounced.Borrowers turn to convertible bonds, floating rate notes and syndicated loansApprehension in financial markets had an immediate impact on borrowers in the international securities market. Some firms postponed their borrowing plans, while others turned to ways of raising funds that were relatively less sensitive to rising credit spreads. Financial institutions, the largest group of borrowers, reduced their presence in the primary market, raising a net $115 billion in the third quarter of 2000, a 27% decline from the previous quarter. Net issuance by German financial institutions, in particular, declined significantly, because of the less favourable market conditions for euro-denominated paper. Among non-financial corporations, those lacking triple-A credit ratings found it increasingly difficult to raise funds from the securities market. Issuance by telecommunications firms, in particular, slowed down sharply in the third quarter, some of them turning instead to the syndicated loan market. To raise funds without paying the full credit spread on fixed rate securities, most of those telecom firms that did tap securities markets for large amounts issued bonds that would be exchangeable for equity. Other corporate issuers turned to floating rate structures.The rise in credit spreads, however, did not lead to an aggregate decline in net issuance of international debt securities. Issuers raised a net $259 billion in the third quarter, almost as much as they had raised in the second. State agencies and government-sponsored enterprises largely made up for the reduced activity of other borrowers in the primary market. With the advantage of triple-A credit ratings, these agencies more than doubled their net debt issuance in the third quarter. In the United States, the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) launched over $50 billion of new international issues combined, accounting for the bulk of gross issuance by the agency sector during the quarter. With a view to offering alternative benchmarks to government securities, these agencies concentrated their issuance in large long-term, fixed rate issues.Developing countries for their part brought a moderate amount of new debt issues to market and engaged in debt exchanges, with the benefit of generally narrower sovereign spreads during the summer. These countries raised a net $8 billion from the securities market in the third quarter. Latin American issuers were especially active, while Asian and central and eastern European issuers stayed away from the primary market (Graph I.8). Some Latin American issuers floated eurobonds in order to buy back relatively more costly Brady bonds. In August, Brazil successfully issued some $5 billion of 40-year debt in exchange for an equivalent amount of Brady bonds. Other countries were said to be exploring similar exchange offers.In contrast to the trend in securities issuance, bank lending to developing economies remained limited in the second quarter of 2000 (the most recent one for which comprehensive data are available), with claims on developing countries contracting by a relatively small amount. A small increase in claims on Latin American countries was not enough to offset continued repayments by Asian borrowers. However, the 1998-99 cycle of net repayments by developing countries appears to have ended, and。

米什金货币金融学英文版习题答案chapter11英文习题Economics of Money, Banking, and Financial Markets, 11e, Global Edition (Mishkin) Chapter 11 Banking Industry: Structure and Competition11.1 Historical Development of the Banking System1) The modern commercial banking system began in America when theA) Bank of United States was chartered in New York in 1801.B) Bank of North America was chartered in Philadelphia in 1782.C) Bank of United States was chartered in Philadelphia in 1801.D) Bank of North America was chartered in New York in 1782.Answer: BAACSB: Application of Knowledge2) A major controversy involving the banking industry in its early years wasA) whether banks should both accept deposits and make loans or whether these functions should be separated into different institutions.B) whether the federal government or the states should charter banks.C) what percent of deposits banks should hold as fractional reserves.D) whether banks should be allowed to issue their own bank notes.Answer: BAACSB: Reflective Thinking3) The government institution that has responsibility for theamount of money and credit supplied in the economy as a whole is theA) central bank.B) commercial bank.C) bank of settlement.D) monetary fund.Answer: AAACSB: Application of Knowledge4) Because of the abuses by state banks and the clear need for a central bank to help the federal government raise funds during the War of 1812, Congress created theA) Bank of United States in 1812.B) Bank of North America in 1814.C) Second Bank of the United States in 1816.D) Second Bank of North America in 1815.Answer: CAACSB: Application of Knowledge5) The Second Bank of the United States was denied a new charter byA) President Andrew Jackson.B) Vice President John Calhoun.C) President Benjamin Harrison.D) President John Q. Adams.Answer: AAACSB: Application of Knowledge6) Currency circulated by banks that could be redeemed for gold was calledA) junk bonds.B) banknotes.C) gold bills.D) state money.Answer: BAACSB: Application of Knowledge7) To eliminate the abuses of the state-chartered banks, the ________ created a new banking system of federally chartered banks, supervised by the ________.A) National Bank Act of 1863; Office of the Comptroller of the CurrencyB) Federal Reserve Act of 1863; Office of the Comptroller of the CurrencyC) National Bank Act of 1863; Office of Thrift SupervisionD) Federal Reserve Act of 1863; Office of Thrift SupervisionAnswer: AAACSB: Application of Knowledge8) The belief that bank failures were regularly caused by fraud or the lack of sufficient bank capital explains, in part, the passage ofA) the National Bank Charter Amendments of 1918.B) the Garn-St. Germain Act of 1982.C) the National Bank Act of 1863.D) Federal Reserve Act of 1913.Answer: CAACSB: Application of Knowledge9) Before 1863A) federally-chartered banks had regulatory advantages not granted to state-chartered banks.B) the number of federally-chartered banks grew at a much faster rate than at any other time since the end of the Civil War.C) banks acquired funds by issuing banknotes.D) banks were required to maintain 100% of their deposits asreserves.Answer: CAACSB: Application of Knowledge10) Prior to 1863, all commercial banks in the United StatesA) were chartered by the U.S. Treasury Department.B) were chartered by the banking commission of the state in which they operated.C) were regulated by the Federal Reserve.D) were regulated by the central bank.Answer: BAACSB: Application of Knowledge11) Although the National Bank Act of 1863 was designed to eliminate state-chartered banks by imposing a prohibitive tax on banknotes, state banks were able to stay in business byA) issuing credit cards.B) ignoring the regulations.C) acquiring funds through deposits.D) branching into other states.Answer: CAACSB: Reflective Thinking12) The National Bank Act of 1863, and subsequent amendments to itA) created a banking system of state-chartered banks.B) established the Office of the Comptroller of the Currency.C) broadened the regulatory powers of the Federal Reserve.D) created insurance on deposit accounts.Answer: BAACSB: Application of Knowledge13) Which regulatory body charters national banks?A) the Federal ReserveB) the FDICC) the Comptroller of the CurrencyD) the U.S. TreasuryAnswer: CAACSB: Application of Knowledge14) The regulatory system that has evolved in the United States whereby banks are regulated at the state level, the national level, or both, is known as aA) bilateral regulatory system.B) tiered regulatory system.C) two-tiered regulatory system.D) dual banking system.Answer: DAACSB: Application of Knowledge15) Today the United States has a dual banking system in which banks supervised by the________ and by the ________ operate side by side.A) federal government; municipalitiesB) state governments; municipalitiesC) federal government; statesD) municipalities; statesAnswer: CAACSB: Application of Knowledge16) The U.S. banking system is considered to be a dual system becauseA) banks offer both checking and savings accounts.B) it actually includes both banks and thrift institutions.C) it is regulated by both state and federal governments.D) it was established before the Civil War, requiring separate regulatory bodies for the North and South.Answer: CAACSB: Reflective Thinking17) The Federal Reserve Act of 1913 required thatA) state banks be subject to the same regulations as national banks.B) national banks establish branches in the cities containing Federal Reserve banks.C) national banks join the Federal Reserve System.D) state banks could not join the Federal Reserve System.Answer: CAACSB: Application of Knowledge18) The Federal Reserve Act of 1913 required all ________ banks to become members of the Federal Reserve System, while ________ banks could choose to become members of the system.A) state; nationalB) state; municipalC) national; stateD) national; municipalAnswer: CAACSB: Application of Knowledge19) Probably the most significant factor explaining the drastic drop in the number of bank failures since the Great Depression has beenA) the creation of the FDIC.B) rapid economic growth since 1941.C) the employment of new procedures by the Federal Reserve.D) better bank management.Answer: AAACSB: Reflective Thinking20) With the creation of the Federal Deposit Insurance Corporation, member banks of the Federal Reserve System ________ to purchase FDIC insurance for their depositors, while non-member commercial banks ________ to buy deposit insurance.A) could choose; were requiredB) could choose; were given the optionC) were required, could chooseD) were required; were requiredAnswer: CAACSB: Application of Knowledge21) With the creation of the Federal Deposit Insurance CorporationA) member banks of the Federal Reserve System were given the option to purchase FDIC insurance for their depositors, while non-member commercial banks were required to buy deposit insurance.B) member banks of the Federal Reserve System were required to purchase FDIC insurance for their depositors, while non-member commercial banks could choose to buy deposit insurance. C) both member and non-member banks of the Federal Reserve System were required to purchase FDIC insurance for their depositors.D) both member and non-member banks of the Federal Reserve System could choose, but were not required, to purchase FDIC insurance for their depositors.Answer: BAACSB: Reflective Thinking22) The Glass-Steagall Act, before its repeal in 1999, prohibited commercial banks fromA) issuing equity to finance bank expansion.B) engaging in underwriting and dealing of corporate securities.C) selling new issues of government securities.D) purchasing any debt securities.Answer: BAACSB: Application of Knowledge23) The legislation that separated investment banking from commercial banking until its repeal in 1999 is known as theA) National Bank Act of 1863.B) Federal Reserve Act of 1913.C) Glass-Steagall Act.D) McFadden Act.Answer: CAACSB: Application of Knowledge24) Which of the following statements concerning bank regulation in the United States is TRUE?A) The Office of the Comptroller of the Currency has the primary responsibility for state banks that are members of the Federal Reserve System.B) The Federal Reserve and the state banking authorities jointly have responsibility for the state banks that are members of the Federal Reserve System.C) The Office of the Comptroller of the Currency has sole regulatory responsibility over bank holding companies.D) The state banking authorities have sole regulatory responsibility for all state banks. Answer: BAACSB: Analytical Thinking25) Which bank regulatory agency has the sole regulatory authority over bank holding companies?A) the FDICB) the Comptroller of the CurrencyC) the FHLBSD) the Federal Reserve SystemAnswer: DAACSB: Application of Knowledge26) State banks that are not members of the Federal Reserve System are most likely to be examined by theA) Federal Reserve System.B) FDIC.C) FHLBS.D) Comptroller of the Currency.Answer: BAACSB: Application of Knowledge27) State banking authorities have sole jurisdiction over state banksA) without FDIC insurance.B) that are not members of the Federal Reserve System.C) operating as bank holding companies.D) chartered in the 21st century.Answer: AAACSB: Application of Knowledge11.2 Financial Innovation and the Growth of the "Shadow Banking System"1) Financial innovations occur because of financial institutions search forA) profits.B) fame.C) stability.D) recognition.Answer: AAACSB: Reflective Thinking2) ________ is the process of researching and developing profitable new products and services by financial institutions.A) Financial engineeringB) Financial manipulationC) Customer manipulationD) Customer engineeringAnswer: AAACSB: Application of Knowledge3) The most significant change in the economic environment that changed the demand for financial products in recent years has beenA) the aging of the baby-boomer generation.B) the dramatic increase in the volatility of interest rates.C) the dramatic increase in competition from foreign banks.D) the deregulation of financial institutions.Answer: BAACSB: Reflective Thinking4) In the 1950s the interest rate on three-month Treasury bills fluctuated between 1 percent and3.5 percent; in the 1980s it fluctuated between ________ percent and ________ percent.A) 5; 15B) 4; 11.5C) 4; 18D) 5; 10Answer: AAACSB: Application of Knowledge5) Uncertainty about interest-rate movements and returns iscalledA) market potential.B) interest-rate irregularities.C) interest-rate risk.D) financial creativity.Answer: CAACSB: Application of Knowledge6) Rising interest-rate riskA) increased the cost of financial innovation.B) increased the demand for financial innovation.C) reduced the cost of financial innovation.D) reduced the demand for financial innovation.Answer: BAACSB: Reflective Thinking7) Adjustable rate mortgagesA) protect households against higher mortgage payments when interest rates rise.B) keep financial institutions' earnings high even when interest rates are falling.C) benefit homeowners when interest rates are falling.D) generally have higher initial interest rates than on conventional fixed-rate mortgages. Answer: CAACSB: Reflective Thinking8) Adjustable rate mortgagesA) reduce the interest-rate risk for financial institutions.B) benefit homeowners when interest rates rise.C) generally have higher initial interest rates than conventional fixed-rate mortgages.D) allow borrowers to avoid paying interest on portions of their mortgage loans.Answer: AAACSB: Reflective Thinking9) The agreement to provide a standardized commodity to a buyer on a specific date at a specific future price isA) a put option.B) a call option.C) a futures contract.D) a mortgage-backed security.Answer: CAACSB: Application of Knowledge10) An instrument developed to help investors and institutions hedge interest-rate risk isA) a debit card.B) a credit card.C) a financial derivative.D) a junk bond.Answer: CAACSB: Application of Knowledge11) Financial instruments whose payoffs are linked to previously issued securities are calledA) grandfathered bonds.B) financial derivatives.C) hedge securities.D) reversible bonds.Answer: BAACSB: Application of Knowledge12) Both ________ and ________ were financial innovations that occurred because of interest rate volatility.A) adjustable-rate mortgages; commercial paperB) adjustable-rate mortgages; financial derivativesC) sweep accounts; financial derivativesD) sweep accounts; commercial paperAnswer: BAACSB: Reflective Thinking13) The most important source of the changes in supply conditions that stimulate financial innovation has been theA) deregulation of financial institutions.B) dramatic increase in the volatility of interest rates.C) improvement in information technology.D) dramatic increase in competition from foreign banks.Answer: CAACSB: Reflective Thinking14) New computer technology hasA) increased the cost of financial innovation.B) increased the demand for financial innovation.C) reduced the cost of financial innovation.D) reduced the demand for financial innovation.Answer: CAACSB: Information Technology15) Credit cards date back toA) prior to the second World War.B) just after the second World War.C) the early 1950s.D) the late 1950s.Answer: AAACSB: Application of Knowledge16) A firm issuing credit cards earns income fromA) loans it makes to credit card holders.B) subsidies from the local governments.C) payments made to it by manufacturers of the productssold in stores on credit card purchases.D) sales of the card in foreign countries.Answer: AAACSB: Reflective Thinking17) The entry of AT&T and GM into the credit card business is an indication ofA) government's efforts to deregulate the provision of financial services.B) the rising profitability of credit card operations.C) the reduction in costs of credit card operations since 1990.D) the sale of unprofitable operations by Bank of America and Citicorp.Answer: BAACSB: Reflective Thinking18) A debit card differs from a credit card in thatA) a debit card is a loan while for a credit card purchase, payment is made immediately.B) a debit card is a long-term loan while a credit card is a short-term loan.C) a credit card is a loan while for a debit card purchase, payment is made immediately.D) a credit card is a long-term loan while a debit card is a short-term loan.Answer: CAACSB: Application of Knowledge19) Automated teller machinesA) are more costly to use than human tellers, so banks discourage their use by charging more for use of ATMs.B) cost about the same to use as human tellers in banks, so banks discourage their use by charging more for use of ATMs.C) cost less than human tellers, so banks may encourage their use by charging less for using ATMs.D) cost nothing to use, so banks provide their services free of charge.Answer: CAACSB: Application of Knowledge20) The declining cost of computer technology has made ________ a reality.A) brick and mortar bankingB) commercial bankingC) virtual bankingD) investment bankingAnswer: CAACSB: Information Technology21) Bank customers perceive Internet-only banks as beingA) more secure than physical bank branches.B) a better method for the purchase of long-term savings products.C) better at keeping customer information private.D) prone to many more technical problems.Answer: DAACSB: Information Technology22) A disadvantage of virtual banks (clicks) is thatA) their hours are more limited than physical banks.B) they are less convenient than physical banks.C) they are more costly to operate than physical banks.D) customers worry about the security of on-line transactions.Answer: DAACSB: Information Technology23) So-called fallen angels differ from junk bonds in thatA) junk bonds refer to newly issued bonds with low credit ratings, whereas fallen angels refer to previously issued bonds that have had their credit ratings fall below Baa.B) junk bonds refer to previously issued bonds that have had their credit ratings fall below Baa, whereas fallen angels refer to newly issued bonds with low credit ratings.C) junk bonds have ratings below Baa, whereas fallen angels have ratings below C.D) fallen angels have ratings below Baa, whereas junk bonds have ratings below C.Answer: AAACSB: Reflective Thinking24) Newly-issued high-yield bonds rated below investment grade by the bond-rating agencies are frequently referred to asA) municipal bonds.B) Yankee bonds.C) "fallen angels."D) junk bonds.Answer: DAACSB: Application of Knowledge25) In 1977, he pioneered the concept of selling new public issues of junk bonds for companies that had not yet achieved investment-grade status.A) Michael MilkenB) Roger MillikenC) Ivan BoeskyD) Carl IcahnAnswer: AAACSB: Application of Knowledge26) One factor contributing to the rapid growth of the commercial paper market since 1970 isA) the fact that commercial paper has no default risk.B) improved information technology making it easier to screen credit risks.C) government regulation.D) FDIC insurance for commercial paper.Answer: BAACSB: Reflective Thinking27) The development of money market mutual funds contributed to the growth of ________ since the money market mutual funds need to hold liquid, high-quality, short-terms assets.A) the commercial paper marketB) the municipal bond marketC) the corporate bond marketD) the junk bond marketAnswer: AAACSB: Reflective Thinking28) The process of transforming otherwise illiquid financial assets into marketable capital market instruments is known asA) securitization.B) internationalization.C) arbitrage.D) program trading.Answer: AAACSB: Application of Knowledge29) ________ is creating a marketable capital market instrument by bundling a portfolio of mortgage or auto loans.A) DiversificationB) ArbitrageC) ComputerizationD) SecuritizationAnswer: DAACSB: Application of Knowledge30) The driving force behind the securitization of mortgages and automobile loans has beenA) the rising regulatory constraints on substitute financial instruments.B) the desire of mortgage and auto lenders to exit this field of lending.C) the improvement in information technology.D) the relaxation of regulatory restrictions on credit card operations.Answer: CAACSB: Information Technology31) Securitization is a process of asset transformation that involves a number of different financial institutions working together. These financial institutions are known collectively as theA) transformers.B) amalgamation.C) movers and shakers.D) shadow banking system.Answer: DAACSB: Application of Knowledge32) Which of the following is NOT part of the shadow banking system?A) the transformerB) the servicerC) the bundlerD) the distributorAnswer: AAACSB: Application of Knowledge33) Because of securitization, a new class of residential mortgages offered to borrowers with less-than-stellar credit records developed. These mortgages are known asA) risk-enhanced mortgages.B) subprime mortgages.C) bundled mortgages.D) adjustable-rate mortgages.Answer: BAACSB: Application of Knowledge34) According to Edward Kane, because the banking industry is one of the most ________ industries in America, it is an industry in which ________ is especially likely to occur.A) competitive; loophole miningB) competitive; innovationC) regulated; loophole miningD) regulated; innovationAnswer: CAACSB: Application of Knowledge35) Loophole mining refers to financial innovation designed toA) hide transactions from the IRS.B) conceal transactions from the SEC.C) get around regulations.D) conceal transactions from the Treasury Department.Answer: CAACSB: Application of Knowledge36) Prior to 2008, bank managers looked on reserverequirementsA) as a tax on deposits.B) as a subsidy on deposits.C) as a subsidy on loans.D) as a tax on loans.Answer: AAACSB: Application of Knowledge37) Prior to 2008, the bank's cost of holding reserves equaledA) the interest paid on deposits times the amount of reserves.B) the interest paid on deposits times the amount of deposits.C) the interest earned on loans times the amount of loans.D) the interest earned on loans times the amount on reserves.Answer: DAACSB: Analytical Thinking38) Prior to 1980, the Fed set an interest rate ________, a maximum limit, on the interest rate that could be paid on time deposits.A) floorB) ceilingC) wallD) windowAnswer: BAACSB: Application of Knowledge39) The process in which people seeking higher yielding securities take their funds out of the banking system thus restricting the amount of funds banks can lend is calledA) capital mobility.B) loophole mining.C) disintermediation.D) deposit jumping.AACSB: Application of Knowledge40) Money market mutual fundsA) function as interest-earning checking accounts.B) are legally deposits.C) are subject to reserve requirements.D) have an interest-rate ceiling.Answer: AAACSB: Application of Knowledge41) In September 2008, the Reserve Primary Fund, a money market mutual fund, found itself in the situation know as "breaking the buck." This means thatA) they could no longer afford to redeem shares at the par value of $1.B) they required shareholders to contribute a dollar more in fees each month.C) shareholders were able to redeem shares for more than a $1.D) shares earned more than a dollar in interest.Answer: AAACSB: Application of Knowledge42) In this type of arrangement, any balances above a certain amount in a corporation's checking account at the end of the business day are "removed" and invested in overnight securities that pay the corporation interest. This innovation is referred to as aA) sweep account.B) share draft account.C) removed-repo account.D) stockman account.AACSB: Application of Knowledge43) Sweep accounts which were created to avoid reserve requirements became possible because of a change inA) deposit ceilings.B) technology.C) government rules.D) bank mergers.Answer: BAACSB: Reflective Thinking44) Sweep accountsA) have made reserve requirements nonbinding for many banks.B) sweep funds out of deposit accounts into long-term securities.C) enable banks to avoid paying interest to corporate customers.D) reduce banks' assets.Answer: AAACSB: Reflective Thinking45) Since 1974, commercial banks importance as a source of funds for nonfinancial borrowersA) has shrunk dramatically, from around 40 percent of total credit advanced to around 25 percent by 2014.B) has shrunk dramatically, from around 70 percent of total credit advanced to below 50 percent by 2014.C) has expanded dramatically, from around 50 percent of total credit advanced to above 70 percent by 2014.D) has expanded dramatically, from around 30 percent of total credit advanced to above 50 percent by 2014.AACSB: Reflective Thinking46) Thrift institutions importance as a source of funds for borrowersA) has shrunk from around 40 percent of total credit advanced in the late 1970s to below 30 percent by 2014.B) has shrunk from over 20 percent of total credit advanced in the late 1970s to around 3 percent by 2014.C) has expanded dramatically, from around 15 percent of total credit advanced in the late 1970s to above 25 percent by 2014.D) has expanded dramatically, from around 15 percent of total credit advanced in the late 1970s to above 30 percent by 2014.Answer: BAACSB: Reflective Thinking47) Since 1980A) banks have decreased risk taking to offset the decline in profits.B) banks have offset the decline in profits from traditional activities with increased income from off-balance-sheet activities.C) banks have offset the decline in profits from off-balance-sheet activities with increased income from traditional activities.D) bank profits have grown rapidly due to deregulation.Answer: BAACSB: Reflective Thinking48) Financial innovation has causedA) banks to suffer declines in their cost advantages in acquiring funds, although it has not caused a decline in income advantages.B) banks to suffer a simultaneous decline of cost and income advantages.C) banks to suffer declines in their income advantages in acquiring funds, although it has not caused a decline in cost advantages.D) banks to achieve competitive advantages in both costs and income.Answer: BAACSB: Reflective Thinking49) Disintermediation resulted fromA) interest rate ceilings combined with inflation-driven increases in interest rates.B) elimination of Regulation Q (the regulation imposing interest rate ceilings on bank deposits).C) increases in federal income taxes.D) reserve requirements.Answer: AAACSB: Reflective Thinking50) The experience of disintermediation in the banking industry illustrates thatA) more regulation of financial markets may avoid such problems in the future.B) banks are unable to remain competitive with other financial intermediaries.C) consumers no longer desire the services that banks provide.D) markets invent alternatives to costly regulations.Answer: DAACSB: Reflective Thinking51) Banks responded to disintermediation byA) supporting the elimination of interest rate regulations, enabling them to better compete for funds.B) opposing the elimination of interest rate regulations, as this would increase their cost of funds.C) demanding that interest rate regulations be imposed on money market mutual funds.D) supporting the elimination of interest rate regulations, as this would reduce their cost of funds.Answer: AAACSB: Reflective Thinking52) One factor contributing to the decline in cost advantages that banks once had is theA) decline in the importance of checkable deposits from over60 percent of banks' liabilities to 2 percent today.B) decline in the importance of savings deposits from over60 percent of banks' liabilities to under 15 percent today.C) decline in the importance of checkable deposits from over40 percent of banks' liabilities to15 percent today.D) decline in the importance of savings deposits from over40 percent of banks' liabilities to under 20 percent today.Answer: AAACSB: Reflective Thinking53) The most important developments that reduced banks cost advantages includeA) the growth of the junk bond market.B) the competition from money market mutual funds.C) the growth of securitization.D) the growth in the commercial paper market.Answer: B。

International Banking and Financial Markets –Module HandbookCode: ECON402351. IntroductionThe globalisation of the international economy has led to the rapid developmentof banking and finance to support it. Developed economies, like the UK, have witnessed the internationalisation of their finance sectors while emerging economies like China and India are developing their banking and finance presence. This module aims to enhance students’ understanding of the economic role of banking and financial markets and analyse the operations of banks and marketsin both a historical and contemporary global context.We will put relevant information pertaining to this module on the NOW, for example this handbook, supplementary handouts etc.2. Teaching TeamMr Michael McCann (module leader)Newton Room 806Tel: 0115 848 2451Email: michael.mccann@Professor Leighton Vaughan WilliamsNewton Room 807Tel: 0115 848 2431Email: leighton.vaughan-williams@Information on availability will be made available on the NOW page for International Banking and Financial Markets.3. Aims and Learning outcomesLearning outcomes describe what you should know and be able to do by the end of the module. These are listed in the module specification which is available in the Core Documents section of the NOW page for International Banking and Financial Markets.4. Content∙Economic role of banking and financial markets∙International Banking∙Financial Markets∙The Efficient Markets Hypothesis∙Prediction Markets5. Teaching and LearningTeaching will be done through weekly lectures and seminars. The lecture will introduce the economic theories and concepts of finance. Some practical examples and case studies will help set theories and concepts in context. The seminar will involve case studies, group-work and individual exercises to enhance learning. Attendance at both lectures and seminars is crucial to succeeding in this module.As graduate students you are expected to take a far greater responsibility in directing your own learning and to undertake directed reading and independent learning to further their understanding of issues in international banking and financial markets.TextbooksValdez, S. (2006) An Introduction to Global Financial Markets, 5th edition, Macmillan Business, London.Mishkin, F. (2003) The Economics of Money, Banking and Financial Markets, 6th edition, Addison-Wesley, New York.Vaughan Williams, Leighton (2005), Information Efficiency in Financial and Betting Markets, Cambridge: Cambridge University Press.Information on further reading will be provided with each topic.All of the articles cited will be available in hard copy in the library or electronically through the libraries website or directly from other websites.AssessmentThere are two pieces of assessmentAssessment 1Class Test (20% of total module mark)The class test will take place during the lecture slot on Tuesday 9th November.Assessment 23,000 word individual written assignment. The assignment will be a multi-part question covering different aspects of international banking and financial markets. The deadline for Assessment 2 will be 8/1/2011。

Chapter 11Chapter11International Trade FinanceImportance of financing in aninternational settlement transactionLetter of Credit issuance（开立信用证）Inward Bill（进口押汇）Shipping guarantee（提货担保）International Trade FinanceTrust receipts（信托收据）Financing from export promotion agency（出口促进机构融资）C di d d i（信用卡透支）Facility on import financeTrade Finance Credit card overdrawing（信用卡透支）P ki l（打包贷款）Packing loan（打包贷款）Outward bills（出口押汇）Bill Discounting（票据贴现）Factoring（保理）Factoring （保理）Forfeiting（福费廷）Export-tax-return loanFacilities on export finance（出口退税抵押贷款）Export guarantee and insurance（出口担保和保险）11.1 Importance of financing in an 111Importance of financing in an international settlement transaction Financing is very important for both the buyer and the seller in an international settlement transaction in that it can ease the transaction, transaction in that it can ease the transaction, reach an agreement and increase sales opportunities.t itia Facilities on import financea Facilities on export finance11.2 Facility on import financeLetter of Credit issuance（开立信用证）Inward Bill（进口押汇）pp g gShipping guarantee（提货担保）Trust receipts（信托收据）Financing from export promotion agencyFinancing from export promotion agency（出口促进机构融资）Credit card overdrawing（信用卡透支）1. Letter of credit issuanceBy issuing a documentary credit, the bank is obliged to pay upon the documents complied with the L/Cp pA documentary credit issuance can be regarded as afinancing arrangement for the customerfinancing arrangement for the customerBased on the creditworthiness of the applicant,the issuing bank will approve a credit line for him,under thehimapproved credit line,the issuing bank will charge no deposit for issuing a L/C from importer.d it f i i f i tCredit Line Granted by BankCompany B Company A Company B 30000 Dollars50000000 DollarsCompany C 5000D ll 5000 DollarsCredit Line ManagementC A l i•State-owned, collectively owned, private ¾Company Analysis ,y ,p •Industry position•History in the industry y y •History with the bank •Corporate strategy p gy •Internal control •Management‘s track record of honoring and Management s track record of honoring and dishonoring obligation•Academic background and experience g p•Decision making process: centralized or decentralized.Capacity to Repay¾Capacity to RepayThe bank must study carefully the auditedfinancial statements, in-house and unaudited financial statementfinancial statement¾Trade AnalysisMarket price and seasonal goods or not•Market, price and seasonal goods or not.•Buyers/suppliers powerDistribution channel•Distribution channel•Goods to be warehoused and insuredCurrency convertibility•Currency convertibility•Any quota requirement and restrictionShi t d it d ti ti•Shipment and its destination2. Inward billsAn inward bill (imported bill purchased) is the issuingbank effects payment to the beneficiary upon presentation of the required documents before the applicant actually pays.p,p yz Under the operation of the L/C, the importer can only obtain the documents of goods title upon the payment.However banks can deal with the importer’s bills andz However, banks can deal with the importer s bills and documents when the importer has difficulties in effectingpaymentt3. Shipping guarantee3Shipping guaranteeWhen the goods arrived at destination before they y g documents, the buyer may obtain a bank guarantee from issuing bank and submit it to the carrier in order to obtain the goods for sale.to obtain the goods for sale.The banks must require the importer to fulfill these ÕTransfer the fund as per the invoice in copy into an escrow The banks must require the importer to fulfill these obligation:Transfer the fund as per the invoice in copy into an escrow account of the issuing bankPresent copies of bill of lading ÕPresent copies of bill of ladingÕWaive the right of rejecting the documents even if there are di idiscrepancies ÕRedeem the shipping guarantee from the shipping company by original bill of lading to return to the bank within 7 working days after the arrival of the original bill of lading ÕBe fully responsible for any loss of the shipping guarantee issued by the bank yShipping Guarantee Flow4. Trust Receipts (T/R)4Trust Receipts(T/R)y p yBefore the buyer effects the payment to the issuing bank, the buyer may borrow the documents from the issuing bank against T/R and obtain the from the issuing bank against T/R and obtain the goods from the carrier.¾A trust receipt is a kind ofimport financing facilityi t fi i f ilit¾The importer will fulfill hisobligation for payment underbli ti f t dthe L/C after he sells thegoods.5. Financing from export promotion agencyFinancing support from export trade promotioni i th ll’t f i iagency services in the seller’s country of origin may include the buyer credit from the seller’s bankwhich makes the late payment of the buyer possible.6. Credit card overdrawingCredit cards can be used by the buyer as a meansof payment for international trade, and at the same of payment for international trade and at the sametime, they can also be used as an option of financingby means of overdrawing for payment. But thelimitations are: some sellers in some countries may ynot accept the credit card payment , and the creditcard payment is only available within a certain card payment is only available within a certain “credit limit”.11.3 Facilities on export finance 113F iliti t fiW Packing loan（打包贷款）Outward billsW Outward bills（出口押汇）W Bill Discounting（票据贴现）W Factoring （保理）W Forfeiting（福费廷）W Export-tax-return loan（出口退税抵押贷款）Export guarantee and insuranceW Export guarantee and insurance （出口担保和保险）g1. Packing loanExporters use the credit as a collateral to apply for a loan, and the funds will be only used forp p g gpreparing the goods under the credit.Packing loan is an export financing provided by banks for exporters preparing goods before shipmentfor exporters preparing goods before shipmentThe exporter must present its credit to the bank from which he gets the loan, and the bank will negotiate the documents and deduct the amount for the purpose of packing goodsThe amount for packing loan is70%-80%of the L/C The amount for packing loan is 70%-80% of the L/CThe procedure of Packing Loan Th d f P ki Lg pThe bank should take the following points into account before making a packing loan to his customer:¶Credit investigation on issuing bank and importer ¶Careful study on L/CBe careful of transferable credit¶¶Know the trade and the marketSupervision and risk mitigation¶Supervision and risk mitigation¶Comparison between packing loan and anticipatory L/Cti i t L/C2. Outward billsOutward bills (export bills purchased) refers afinancing facility that the bank will purchase the financing facility that the bank will purchase theexport bill and documents upon the request of aexporter if the documents presented comply with if i the terms and conditions of the L/C.Four factors are considered by the bank before F f t id d b th b k b fit decides to purchase the bill:Credits of iss ing banksÂCredits of issuing banksÂConformity of documents with L/C“Soft Clauses” of creditgÂInvestigation on trade and tradersThe procedure of Outward bills The procedure of Outward bills3. Bill Discounting3Bill DiscountingBill discount is an act of bill, and is a kind of financing. The bill to be discounted must be a time financing The bill to be discounted must be a time bill, and it can be discounted after its acceptance.4. Factoring4F t iFactoring contract means a contract concluded“Factoring contract”means a contract concludedbetween the supplier and the factor pursuant withwhichÎThe supplier may assign to the factor receivables;Th f t i t f fi i f th llÎThe factor is to perform financing for the seller, maintenance of accounts, collection of receivables andprotection against default in payment by the buyers;ÎNotice of the assignment of the receivables is to be given in writing to the debtorsThe operation of Factoring1.Goods & InvoiceBuyer Seller2. Copiesof Invoice 3. a. Prepayments b. Credit Cover 5. DebitCollection6. Payment 4. Send InvoiceImport Export7. a. Paymentb. Credit Cover FactoringFactoring b C ed t Co eFunction of factoringU FinanceU Sales ledger administrationU Collection of A/RU Credit cover5. ForfeitingForfeiting is the term generally used to denote the purchase of obligation falling due at somefuture date arising from deliveries of goods and future date, arising from deliveries of goods andservice-mostly export transactions-withoutrecourse to any previous holder of the obligation.Procedure of Forfeiting Procedure of Forfeiting1Contract Drawing Draft2. Issue Note 1. Contract /Drawing Draft Importer Exporter6. Payment 4.Discount Note or Draft3.DeliverNote orf InstallmentwithoutRecourse Draft F f i i B k I ’B k5. Guarantee Note or Draft Forfeiting BankImporter’s BankRisk in forfeiting gThe risks of export finance connected with anyf b d fi i ll d fi d type of cross-border financing are usually defined as political, transfer, commercial and currency risks.Advantages for exportersRelieves the balance sheet of contingent liabilities;D Relieves the balance sheet of contingent liabilities;D Improves liquidity of possible losses through only partial state or private insurance cover and the negation of possible liquidity problems which are negation of possible liquidity problems which are unavoidable during the claim period withi nsurance coverD There is no interest rate riskD There is no risk of fluctuations in the exchange rate nor changes in the status of the debtort h i th t t f th d btComparison between factoring and forfeitingp g gItems Factoring ForfeitingNature New and comprehensive method oftSimilarities paymentContent Risk protection and trade financingMethod Purchase of export receivablesPurchase target Consumer goodsreceivables Capital goods receivablesPurchase percentage Entire or partialPurchase percentage Entire or partial EntireReceivable nature General receivables Bills or certificateBank guarantee No Import bank Differences guaranteePurchase nature With or withoutdiscourse Without discourseOth i With t Other services With WithoutRisk control and transfer Credit ranking Syndicated ormarket transfer(negotiable)Basic method O/A, D/A Clean collection,L/C6. Export-tax-return loanThis is a short-term loan offered by a bank to the seller by using its export-tax-returny g preceivables or account as collateral.This type of export financing may be necessary when the export tax return needs some time to be when the export-tax return needs some time to be completed by the taxation authority and the seller needs immediate money even after the payment needs immediate money even after the payment has been completed in an international settlement transaction.transaction7. Export guarantee and insuranceIn order to promote export, many government In order to promote export many government have established some financial institutions providing export guarantee and insurance, e.g. in idi d i i China, we have China Import and Export Bank; in U.K., they have Export Credit Guarantee Bureau; in France, they have The Foreign Trade Bureau;in France,they have The Foreign Trade Insurance Corporation, etc. They are actually “liti l”t t d fi i l i tit ti “political” or state-owned financial institutions established to encourage and support national export.A bank guarantee may also be defined as anA b k t l b d fi d independent obligation where the guarantor ( a bank/ financial institution/ surety) has to make a special agreement with its customer, ensuring that special agreement with its customer,ensuring that it will be refunded by him for any payment to be effected under the contract of guarantee.ff t d d th t t f t（一）开证额度的使用案例介绍假设进口企业A在银行B开户。