International Finance and Treasury MCQ Questions and Solutions with Explanations | Management

Issuers that are not involved directly in funds transferring are classified as corporate issuers. An issuer is a legal entity that develops, registers and sells securities to finance its operations. Issuers may be corporations, investment trusts, or domestic or foreign governments.

Situation in which claims by financial institutions than claims issued by corporations is more considerable for investors is classified as asset transformers. Asset transformation is the process of creating a new asset (loan) from liabilities (deposits) with different characteristics by converting small denomination, immediately available and relatively risk free bank deposits into loans–new relatively risky, large denomination asset–that are repaid following a set schedule.

Reduction of risk by holding large number of securities in portfolio of assets is classified as diversification. A diversified investment is a portfolio of various assets that earns the highest return for the least risk. A typical diversified portfolio has a mixture of stocks, fixed income, and commodities.

Bonds which are denominated in dollars and are issued in canters of London and Luxemburg are classified as Eurodollar bonds. A Eurodollar bond is a U.S.-dollar denominated bond issued by an overseas company and held in a foreign institution outside both the U.S. and the issuer's home country. Eurodollar bonds are an important source of capital for multinational companies and foreign governments. A Eurodollar bond is a type of Eurobond.

Financial intermediaries offering savings plans to individuals and funds are exempted from taxation are considered as pension funds. Pension funds are investment pools that pay for employee retirement commitments. Funds are paid for by either employees, employers, or both. Corporations and all levels of government provide pensions. The fund managers invest these contributions conservatively.

Ability of an asset to be converted in to cash very quickly is classified as liquidity. Financial liquidity refers to how easily assets can be converted into cash. Assets like stocks and bonds are very liquid since they can be converted to cash within days. However, large assets such as property, plant, and equipment are not as easily converted to cash.

Type of markets in which derivative securities are traded is classified as derivative security markets. Derivative securities (also called derivatives) are financial contracts whose values are derived from the values of underlying financial assets (such as securities).

Institutions classified as depository ones and have loans as their major assets are classified as commercial banks. A commercial bank is a type of financial institution that accepts deposits, offers checking account services, makes various loans, and offers basic financial products like certificates of deposit (CDs) and savings accounts to individuals and small businesses. A commercial bank is where most people do their banking, as opposed to an investment bank.

Major assets of commercial banks are commercial loans and deposits.

Exchange rate of foreign currency fluctuate day to day because of demand and supply. An exchange rate is the value of one nation's currency versus the currency of another nation or economic zone.