1. The risk that many borrowers in a particular country fail to repay their loans as a result of a recession in that country relates to

   	A.	credit risk.
   	B.	sovereign risk.
   	C.	liquidity risk.
   	D.	currency risk.
   	E.	interest rate risk.

QUESTION 2

1. Which of the following statements is FALSE?

   	A.	If the euro is expected to depreciate in the near future, an Australian-based FI in Paris would prefer net long in its foreign (euro) asset positions.
   	B.	Given the current spot rate is S$1.50/A$1, if the exchange rate at the end of the year is S$1.00/A$1, the Australian dollar have depreciated against the Singapore dollar.
   	C.	Matching the size of the foreign currency book will not eliminate the risk of the international transactions if the maturities of the assets and liabilities are mismatched.
   	D.	Foreign exchange risk is the risk that exchange rate changes can affect the value of an FIs assets and liabilities denominated in foreign currencies.
   	E.	An FI is net long in foreign assets if it holds more foreign assets than liabilities.

   QUESTION 3

2. Which of the following is NOT an advantage of a finance company over a commercial bank in providing services to small business customers?

3. 	A.	Finance companies are less willing to accept risky customers than are banks.
   	B.	Finance companies do not accept deposits and therefore are not subject to bank-type regulatory restrictions.
   	C.	Finance companies generally have lower overhead than banks.
   	D.	Finance companies often have substantial industry and product expertise.
   	E.	Finance companies are not subject to regulations that restrict the type of products and services they can offer.