International Business Opportunities

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 Chapter 7
Foreign Exchange and the Global Capital
Markets

True/False Questions

1. A company operating globally must deal in foreign currencies, as it has to pay suppliers in
other countries with a currency different from its home country’s currency.
True; Easy

2. A company, when it expects to be paid in its own currency, must assess the risk that the buyer
may not be able to pay the full amount due to currency fluctuations.
True; Easy

3. Typically, the sell or the ask is always cheaper than the bid or the buy.
False; Easy

4. An organization making use of the foreign exchange market can afford to ignore the rate at
which a currency is bought or sold.
False; Easy

5. A company’s primary purpose for wanting or needing to convert currencies is to pay or

receive money for goods or services.
True; Easy

6. Companies use hedging as a way to protect themselves if there is a time lag between when
they bill and receive payment from a customer.
True; Easy

7. Non-finance companies prefer currency arbitrage and speculation while making investments,
as they are not a risk and there are high gain methods of earning profits.
False; Easy

8. The indirect quote method follows the American terms for noting the base and quoted
currency.
False; Easy

9. In an exchange rate quote, the base currency is typically the numerator.

False; Easy

10. In a direct quote, the foreign currency is a variable amount and the domestic currency is fixed
at one unit.
False; Easy

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11. In an indirect quote, the domestic currency is a variable amount and the foreign currency is
fixed at one unit.
False; Easy

12. An organization makes use of the spot rate for making an immediate payment. The
organization does not face the risk of the currency increasing or decreasing in value.
True; Easy

13. In the forward markets, foreign exchange is always quoted against the U.S. dollar.
True; Easy

14. The possibility of the trading of a currency in the forward market depends on the currency’s
demand in international financial markets.
True; Easy

15. A currency swap helps a firm to reduce its foreign exchange rate risk by simultaneously
locking into the price for two transactions of a currency.
True; Easy

16. Currency option is a right but not a requirement and therefore parties in a currency option do
not have to actually exchange the currencies if they choose not to.
True; Easy

17. Futures contracts are identical to forward contracts.

False; Easy

18. The only reason a saver puts his cash at risk in the capital market is if the returns on the
investment are greater than returns on holding risk-free assets.
True; Easy 198

19. One of the primary purposes of the capital markets is creating economies of scale.
True; Easy

20. Companies are motivated to repay their bonds in a timely manner in order to maintain
credibility in the financial market.
True; Easy

21. International equity markets consist of all the stock traded inside as well as outside the
issuing company’s home country.
False; Easy

22. Companies that do not want to issue more equity shares and dilute the ownership interests of
existing shareholders prefer using bonds or debt to raise capital.
True; Easy

23. The low appeal of the Eurocurrency market among borrowers is primarily because the market
is highly regulatory, giving rise to prohibitive costs.
False; Easy

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24. The Eurocurrency markets were a result of Eastern Europe’s concern that any deposits of
their dollars in U.S. banks might be confiscated or blocked for political reasons by the U.S.
government.
True; Easy

25. VCs are characterized primarily by their investments in smaller, high-growth firms that are
considered riskier than traditional investments.
True; Easy

Multiple Choice Questions

26. _____ refers to the money of one country denominated in the currency of another country or
a group of countries.
a. Forward rate
b. Foreign exchange
c. Stock exchange
d. Equity swap
e. Loan
b; Easy

27. The _____ is the price at which a bank or financial services firm is willing to buy a specific
currency.
a. exchange rate
b. foreign exchange
c. bid
d. ask
e. spread
c; Easy

28. The “ask” refers to:

a. any form of money in general circulation in a country.
b. money of one country denominated in the currency of another country or a group of
countries.
c. the price at which a bank or a financial services firm is willing to sell that currency.
d. the rate at which the market converts one currency into another.
e. the price at which a bank or a financial services firm is willing to buy a specific currency.
c; Easy

29. _____ refers to the technique of protecting against the potential losses that result from
adverse changes in exchange rates.
a. Currency hedging
b. Currency swap
c. Currency speculation
d. Currency conversion
e. Currency arbitrage
a; Easy

30. Suppose a European tourist in the United States uses 1 euro to buy 1.27 U.S. dollars.
However, when she leaves the United States, she pays 1.50 U.S. dollars to buy 1 euro. The
difference of 0.23 U.S. dollars is the:

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 a. amount refunded to the tourist once she reaches her home country.
b. profit that the bank makes for each U.S. dollar bought and sold.
c. fee paid to the U.S. government for the stay in the country.
d. profit that the U.S. treasury department makes on each U.S. dollar bought and sold.
e. profit that the U.S. Home department makes on each U.S. dollar bought and sold.
b; Moderate

31. Currency arbitrage refers to the:

a. conversion of one currency into another.
b. technique of protecting against the potential losses that result from adverse changes in
exchange rates.
c. simultaneous and instantaneous purchase and sale of a currency for a profit.
d. price at which a bank or a financial services firm is willing to sell a currency.
e. practice of buying and selling a currency with the expectation that the value will change
and result in a profit.
c; Moderate

32. Currency speculation refers to the:

a. conversion of one currency into another.
b. technique of protecting against the potential losses that result from adverse changes in
exchange rates.
c. simultaneous and instantaneous purchase and sale of a currency for a profit.
d. exchange rates that require immediate settlement with delivery of the traded currency.
e. practice of buying and selling a currency with the expectation that the value will change
and result in a profit.
e; Easy

33. Suppose we quote the number of Indian rupees required to purchase 1 U.S. dollar as INR 45 /
USD 1. In this case, INR is referred to as:
a. currency hedging.
b. base currency.
c. currency speculation.
d. currency arbitrage.
e. quoted currency.
e; Easy

34. Suppose we quote the number of Indian rupees required to purchase 1 U.S. dollar as INR 45 /
USD 1. In this case, USD is referred to as:
a. currency hedging.
b. base currency.
c. currency speculation.
d. currency arbitrage.
e. quoted currency.
b; Easy

35. In the _____ approach, foreign exchange rates are expressed in terms of the number of U.S.
dollars that can be exchanged for one unit of another currency.
a. bid
b. ask
c. indirect quote
d. direct quote

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 e. spot rate
d; Easy

36. In the _____ approach, foreign exchange rates are expressed in terms of the number of
currency units that can be exchanged for a U.S. dollar.
a. bid
b. ask
c. indirect quote
d. direct quote
e. spot rate
c; Easy

37. Which of the following is true for the term “spot exchange rate”?
a. It refers to the technique of protecting against the potential losses that result from adverse
changes in exchange rates.
b. It refers to the simultaneous and instantaneous purchase and sale of a currency for a
profit.
c. It refers to the exchange rates that require immediate settlement with delivery of the
traded currency.
d. It refers to the practice of buying and selling a currency with the expectation that the
value will change and result in a profit.
e. It refers to the exchange rate between two currencies, neither of which is the official
currency in the country in which the quote is provided.
c; Easy

38. If an exchange rate between the U.S. dollar and the Chinese renminbi were quoted by a
Japanese bank on Japanese soil, then the exchange rate would be termed as a:
a. currency futures contract.
b. currency swap.
c. forward exchange rate.
d. currency conversion.
e. cross rate.
e; Moderate

39. The _____ is still the reserve currency for the world’s central banks despite the changes in the
international monetary system and the expansion of the capital markets.
a. dollar
b. pound
c. euro
d. renminbi
e. yen
a; Easy

40. The _____ is the exchange rate at which a buyer and a seller agree to transact a currency at
some date in the future.
a. currency futures contract
b. currency swap
c. forward exchange rate
d. spot rate
e. cross rate
c; Easy

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41. If a European company opts to buy shirts from India with payment due in 60 days, it would
be able to access the forward market to enter into a contract to lock in a future price for its
payment. This would enable the European firm to protect itself against depreciation of the
euro, which would require more euros to buy one Indian rupee. This contract is referred to as
a(n):
a. option contract.
b. forward contract.
c. implicit contract.
d. voidable contract.
e. quasi-contract.
b; Easy

42. Forward contracts, currency swaps, options, and futures all belong to a group of financial
instruments called:
a. bonds.
b. derivatives.
c. loans.
d. deposits.
e. stocks.
b; Easy

43. A _____ is a simultaneous buy and sell of a currency for two different dates.
a. spot rate
b. currency conversion
c. currency futures contract
d. currency swap
e. currency option
d; Easy

44. _____ is the option or the right but not the obligation to exchange a specific amount of
currency on a specific future date and at a specific agreed-on rate.
a. Currency option
b. Currency swap
c. Currency conversion
d. Cross rate
e. Currency futures contract
a; Easy

45. Which of the following is true for forward contracts?

a. They have standardized terms.
b. They have clearinghouses that guarantee the transactions.
c. They are private contracts between two parties.
d. The parties involved have a zero risk of defaulting on a contract.
e. They are marked-to-market daily.
c; Moderate

46. Speculators, who bet on the direction in which a currency’s price will move, frequently
employ:
a. forward contracts.
b. a bid.

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 c. an ask.
d. currency futures contracts.
e. a cross rate.
d; Easy

47. Companies, institutions, or hedgers employ _____ to eliminate the volatility of a currency’s
price in the future.
a. forward contracts
b. a bid
c. an ask
d. cross rates
e. currency futures contracts
a; Easy

48. Which of the following is true for futures contracts?

a. They do not have standardized terms.
b. They have clearinghouses that guarantee the transactions.
c. They are private contracts between two parties.
d. The parties have a higher risk of defaulting on a contract.
e. The settlement of a futures contract occurs at the end of the contract.
b; Moderate

49. _____ refers to the money that is invested in return for a percentage of ownership but is not
guaranteed in terms of repayment.
a. Bid
b. Ask
c. Currency swap
d. Currency conversion
e. Equity
e; Easy

50. A _____ is a system in which people, companies, and governments with an excess of funds
transfer those funds to people, companies, and governments that have a shortage of funds.
a. forward contract
b. currency swap
c. currency conversion
d. forward market
e. capital market
e; Easy

51. A movie production house makes a gross profit of $10 million from a movie release. If the
company spends $4 million, including taxes and all expenses, then it has $6 million in profits.
The company can invest the $6 million in a mutual fund, investing in stocks and bonds all
over the world. Making such an investment is riskier than keeping the $6 million in a savings
account. The financial officer hopes that over the long term, the investment will yield greater
returns than cash holdings or interest on a savings account. This is an example of a form of:
a. direct finance.
b. indirect finance.
c. currency swap.
d. currency conversion.
e. cross rate.

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 a; Moderate

52. _____ refers to the capital market where new securities (stocks and bonds are the most
common) are issued.
a. Tertiary market
b. Secondary market
c. Forward market
d. Primary market
e. Main market
d; Moderate

53. _____ involves a financial intermediary between the borrower and the saver.
a. Direct finance
b. Indirect finance
c. Currency swap
d. Currency conversion
e. Cross rate
b; Easy

54. Which of the following is true of equity securities?

a. It refers to the technique of protecting against the potential losses that result from adverse
changes in exchange rates.
b. It refers to a loan from the investor to a company or government entity.
c. It refers to the simultaneous and instantaneous purchase and sale of a currency for a
profit.
d. It refers to the practice of buying and selling a currency with the expectation that the
value will change and result in a profit.
e. It refers to the ownership of a part of a company.
e; Moderate

55. The _____ includes stock exchanges, bond markets, and futures and options markets, among
others.
a. tertiary market
b. secondary market
c. forward market
d. primary market
e. main market
b; Easy

56. Which of the following is true of debt securities?

a. It refers to the technique of protecting against the potential losses that result from adverse
changes in exchange rates.
b. It refers to the simultaneous and instantaneous purchase and sale of a currency for a
profit.
c. It refers to a loan from the investor to a company or government entity.
d. It refers to the practice of buying and selling a currency with the expectation that the
value will change and result in a profit.
e. It refers to the ownership of a part of a company.
c; Easy

57. When investors buy bonds, they receive interest payments:

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 a. usually if the organization makes profits.
b. usually at a fixed rate for the life of the bond.
c. usually at a varied rate for the life of the bond.
d. accumulated at the expiry of the life of the bond.
e. usually at the end of every two years.
b; Moderate

58. Which of the following is true of stocks?

a. It refers to a loan from the investor to a company or government entity.
b. It refers to the simultaneous and instantaneous purchase and sale of a currency for a
profit.
c. It refers to the practice of buying and selling a currency with the expectation that the
value will change and result in a profit.
d. It refers to a type of equity security that gives the holder an ownership of a company’s
assets and earnings.
e. It refers to the technique of protecting against the potential losses that result from adverse
changes in exchange rates.
d; Moderate

59. _____ in capital markets refers to the ease by which shareholders and bondholders can buy
and sell their securities or convert their investments into cash.
a. Liquidity
b. Direct finance
c. Indirect finance
d. Currency swap
e. Currency conversion
a; Easy

60. A foreign bond is a bond:

a. issued in the currency of the country in which it is being sold.
b. issued outside the country in whose currency it is denominated.
c. that is sold simultaneously in several global financial centers.
d. that is denominated in one currency, usually U.S. dollars or euros.
e. which is not regulated by the governments of the countries in which they are sold.
a; Moderate

61. Eurodollar refers to:

a. a currency that is issued by the European Union to repay debts to American financial
institutions.
b. a currency which serves as the world's primary reserve currency.
c. U.S. dollars deposited in any bank outside the United States.
d. any currency on deposit outside its country of issue.
e. the international pricing currency for products traded on a global market.
c; Moderate

62. Which of the following is true of LIBOR?

a. It is the interest rate that London banks charge each other for Eurocurrency loans.
b. It is the rate bid by banks on Eurocurrency deposits.
c. It is the rate at which banks offer to lend unsecured funds to other banks in the euro
wholesale money market.
d. It refers to the overnight indexed swap rate.

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 e. It is the reference rate for overnight-unsecured transactions in the Sterling market.
a; Moderate

63. Eurocurrency refers to:

a. a currency that is issued by the European Union to repay debts to American financial
institutions.
b. a currency which serves as the world’s primary reserve currency.
c. the U.S. dollars deposited in any bank outside the United States.
d. any currency on deposit outside its country of issue.
e. the international pricing currency for products traded on a global market.
d; Moderate

64. A _____ is a bond issued outside the country in whose currency it is denominated.
a. Yankee bond
b. samurai bond
c. Eurobond
d. global bond
e. dragon bond
c; Easy

65. A _____ is a bond that is sold simultaneously in several global financial centers and is
denominated in one currency, usually U.S. dollars or euros.
a. Yankee bond
b. samurai bond
c. Eurobond
d. global bond
e. dragon bond
d; Easy

66. Which of the following is true for offshore financial centers?

a. They are developed countries who offer tax-free financial help to developing countries.
b. They are countries where there are few rules governing the financial sector as a whole
and low overall taxes.
c. They are central points for business and finance and are usually home to major
corporations and banks or at least regional headquarters for global firms.
d. They are countries which serve as the local headquarters for the International Monetary
Fund and the World Bank.
e. They are islands which serve as the annual destinations for the financial meets of the G20
group.
b; Moderate

67. Which of the following is true for world financial centers?

a. They are developed countries who offer tax-free financial help to the developing
countries.
b. They are countries or territories where there are few rules governing the financial sector
as a whole and low overall taxes.
c. They are central points for business and finance and are usually home to major
corporations and banks or at least regional headquarters for global firms.
d. They are countries which serve as the local headquarters for the International Monetary
Fund and the World Bank.

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 e. They are islands which serve as the annual destinations for the financial meets of the G20
group.
c; Moderate

68. _____ focus primarily on the creation and sale of securities to help companies, governments,
and large institutions achieve their financing objectives.
a. Corporate banks
b. Private banks
c. Retail banks
d. Investment banks
e. Business banks
d; Easy

69. In the United States, retail and investment banks were barred from being under the same
corporate umbrella by the:
a. Gramm–Leach–Bliley Act.
b. Glass-Steagall Act.
c. Sarbanes–Oxley Act.
d. Case-Zablocki Act.
e. Hyde Act.
b; Easy

70. Venture capital refers to the:

a. way that an investor can liquidate an investment, usually for a liquid security or cash.
b. investments made by microfinance institutions in government projects.
c. investment made in an early- or growth-stage company.
d. investment made by financial institutions to turn around sick companies.
e. way that an investor can avail short-term tax-free loans for his organization.
c; Easy

Short Answer Questions

71. What is a bid and how does it differ from an offer?

The “bid” (or buy) is the price at which a bank or financial services firm is willing to buy a
specific currency. The “ask” (or the offer or sell), refers to the price at which a bank or
financial services firm is willing to sell that currency. Typically, the bid or the buy is always
cheaper than the sell.
Easy

72. How would you differentiate between the direct currency quote and the indirect currency
quote?
There are two methods, the American terms and the European terms, for noting the base and
quoted currency. These two methods are also known as direct and indirect quotes. The
American terms, also known as U.S. terms, are from the point of view of someone in the
United States. In this approach, foreign exchange rates are expressed in terms of how many
U.S. dollars can be exchanged for one unit of another currency (the non-U.S. currency is the
base currency). This is also called a direct quote, which states the domestic currency price of
one unit of foreign currency. In a direct quote, the domestic currency is a variable amount and
the foreign currency is fixed at one unit. The European terms are the other approach for
quoting rates. In this approach, foreign exchange rates are expressed in terms of how many

©2013 Flat World Knowledge, Inc. 12

 currency units can be exchanged for a U.S. dollar (the U.S. dollar is the base currency). While
this is a direct quote for someone in Europe, it is an indirect quote in the United States. An
indirect quote states the price of the domestic currency in foreign currency terms. In an
indirect quote, the foreign currency is a variable amount and the domestic currency is fixed at
one unit.
Hard

73. What do you understand by the term “spot rates”?

Exchange rates that require immediate settlement with delivery of the traded currency are
termed as spot rates. “Immediate” usually means within two business days, but it implies an
“on the spot” exchange of the currencies. The spot exchange rate is the exchange rate
transacted at a particular moment by the buyer and seller of a currency. When one buys and
sells foreign currency at a bank or at American Express, it is quoted at the rate for the day.
For currency traders though, the spot can change throughout the trading day even by tiny
fractions.
Easy

74. What are termed as “majors” in the financial market?

The currency pairs that include the U.S. dollar are called the “majors” because of their high
degree of liquidity. The majors are EUR/USD, GBP/ USD, USD/JPY, USD/CAD,
USD/CHF, and USD/AUD. Despite the changes in the international monetary system and the
expansion of the capital markets, the currency market is really a market of dollars and non-
dollars. The dollar is still the reserve currency for the world’s central banks.
Easy

75. How do you differentiate between a futures contract and a forward contract?
Futures contracts are actively traded on exchanges, and the terms are standardized. As a
result, futures contracts have clearinghouses that guarantee the transactions, substantially
reducing any risk of default by either party. Forward contracts are private contracts between
two parties and are not standardized. As a result, the parties have a higher risk of defaulting
on a contract. The settlement of a forward contract occurs at the end of the contract. Futures
contracts are marked-to-market daily. Furthermore, the settlement of a futures contract can
occur over a range of dates. Forward contracts, on the other hand, only have one settlement
date at the end of the contract. Futures contracts are frequently employed by speculators, who
bet on the direction in which a currency’s price will move. As a result, futures contracts are
usually closed out prior to maturity and delivery usually never happens. On the other hand,
forward contracts are mostly used by companies, institutions, or hedgers that want to
eliminate the volatility of a currency’s price in the future and delivery of the currency will
usually take place.
Moderate

76. What are the benefits provided by the international capital markets in addition to the benefits
provided by the domestic capital market?
International capital markets allow companies and governments to tap into foreign markets
and access new sources of funds. Many domestic markets are too small or too costly for
companies to borrow in. By using the international capital markets, companies, governments,
and even individuals can borrow or invest in other countries for either higher rates of return
or lower borrowing costs. International capital markets also allow individuals, companies,
and governments to access more opportunities in different countries to borrow or invest,
which in turn reduces risk. The theory is that not all markets will experience contractions at
the same time.

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 Easy

77. How did the Eurocurrency markets come into existence?

The Eurocurrency markets originated in the 1950s when communist governments in Eastern
Europe became concerned that any deposits of their dollars in U.S. banks might be
confiscated or blocked for political reasons by the U.S. government. These communist
governments addressed their concerns by depositing their dollars into European banks, which
were willing to maintain dollar accounts for them. This created what is known as the
Eurodollar—U.S. dollars deposited in European banks. The prefix Euro- is now only a
historical reference to its early days. An extension of the Eurodollar is the Eurocurrency,
which is a currency on deposit outside its country of issue. While Eurocurrencies can be in
any denominations, almost half of world deposits are in the form of Eurodollars.
Moderate

78. What is the primary source of appeal of the Eurocurrency market for the borrowers?
The primary appeal of the Eurocurrency market is that there are no regulations, which results
in lower costs. The participants in the Eurocurrency markets are very large global firms,
banks, governments, and extremely wealthy individuals. As a result, the transaction sizes tend
to be large, which provides an economy of scale and nets overall lower transaction costs. The
Eurocurrency markets are relatively cheap, short-term financing options for Eurocurrency
loans. They are also a short-term investing option for entities with excess funds in the form of
Eurocurrency deposits.
Easy

79. What do you understand by the term “world financial centers”?

World financial centers are in essence central points for business and finance. They are
usually home to major corporations and banks or at least regional headquarters for global
firms. They all have at least one globally active stock exchange. Their actual order of
importance may differ both on the ranking format and on the year. The cities which rank as
global financial centers are New York, London, Tokyo, Hong Kong, Singapore, Chicago,
Zurich, Geneva, and Sydney.
Easy

80. What was the Glass-Steagall Act?

The Glass-Steagall Act was enacted in 1932 during the Great Depression. It was officially
called the Banking Reform Act of 1933 and it led to the creation of the Federal Deposit
Insurance Corporations (FDIC). It implemented bank reforms, beginning in 1932 and
continuing through 1933. These reforms are credited with providing stability and reduced risk
in the banking industry for decades. Among other things, it prohibited bank-holding
companies from owning other financial companies. This served to ensure that investment
banks and banks would remain separate until 1999, when Glass-Steagall was repealed. Some
analysts have criticized the repeal of Glass-Steagall as one cause of the 2007–8 financial
crisis.
Moderate

Essay Questions

81. What are the main uses of the foreign exchange market?
International businesses have four main uses of the foreign exchange markets. The first use of
the foreign exchange market is currency conversion. Companies, investors, and governments

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 want to be able to convert one currency into another. A company’s primary purpose for
wanting or needing to convert currencies is to pay or receive money for goods or services.
The foreign exchange market is also used for currency hedging. One of the biggest challenges
in foreign exchange is the risk of rates increasing or decreasing in greater amounts or
directions than anticipated. Currency hedging refers to the technique of protecting against the
potential losses that result from adverse changes in exchange rates. Companies use hedging
as a way to protect themselves if there is a time lag between when they bill and receive
payment from a customer. Conversely, a company may owe payment to an overseas vendor
and want to protect against changes in the exchange rate that would increase the amount of
the payment. Currency arbitrage and currency speculation are the two other uses of the
foreign exchange market. Arbitrage is the simultaneous and instantaneous purchase and sale
of a currency for a profit. Advances in technology have enabled trading systems to capture
slight differences in price and execute a transaction, all within seconds. Speculation refers to
the practice of buying and selling a currency with the expectation that the value will change
and result in a profit. Such changes could happen instantly or over a period of time.
Moderate

82. What are derivatives? Discuss the different types of derivatives.

Derivatives are financial instruments whose underlying value comes from other financial
instruments or commodities. Forward contracts, currency swaps, options, and futures all
belong to derivatives. A forward contract is a contract that requires the exchange of an
agreed-on amount of a currency on an agreed-on date and a specific exchange rate. Swaps,
options, and futures are three additional currency instruments used in the forward market. A
currency swap is a simultaneous buy and sell of a currency for two different dates. By
entering into both transactions, the firm is able to reduce its foreign exchange rate risk by
locking into the price for both. Currency options are the option or the right, but not the
obligation, to exchange a specific amount of currency on a specific future date and at a
specific agreed-on rate. Since a currency option is a right but not a requirement, the parties in
an option do not have to actually exchange the currencies if they choose not to. This is
referred to as not exercising an option. Currency futures contracts are contracts that require
the exchange of a specific amount of currency at a specific future date and at a specific
exchange rate. Futures contracts are similar to but not identical to forward contracts.
Moderate

83. What are the key factors that have contributed to the increased growth of the international
equity markets?
The key factors are:
• Growth of developing markets: As developing countries experience growth, their
domestic firms seek to expand into global markets and take advantage of cheaper and
more flexible financial markets.
• Drive to privatize: In the past two decades, the general trend in developing and emerging
markets has been to privatize formerly state-owned enterprises. These entities tend to be
large, and when they sell some or all of their shares, it infuses billions of dollars of new
equity into local and global markets. Domestic and global investors, eager to participate
in the growth of the local economy, buy these shares.
• Investment banks: With the increased opportunities in new emerging markets and the
need to simply expand their own businesses, investment banks often lead the way in the
expansion of global equity markets. These specialized banks seek to be retained by large
companies in developing countries or the governments pursuing privatization to issue and
sell the stocks to investors with deep pockets outside the local country.

©2013 Flat World Knowledge, Inc. 15

 • Technology advancements: The expansion of technology into global finance has opened
new opportunities to investors and companies around the world. Technology and the
Internet have provided more efficient and cheaper means of trading stocks and, in some
cases, issuing shares by smaller companies.
Hard

84. What are offshore financial centers?

An offshore financial center is a country or territory where there are few rules governing the
financial sector as a whole and low overall taxes. As a result, many offshore centers are
called tax havens. Most of these countries or territories are politically and economically
stable, and in most cases, the local government has determined that becoming an offshore
financial center is its main industry. As a result, they invest in the technology and
infrastructure to remain globally linked and competitive in the global finance marketplace. As
a result of the size of financial transactions that flow through offshore centers, they have been
increasingly important in the global capital markets.
Moderate

85. What is venture capital (VC)?

Venture capital (VC) refers to the investment made in an early- or growth-stage company.
Venture capitalist refers to the investor. One of the unintended benefits of the expansion of
the global capital markets has been the expansion of international VC. Typically, VCs
establish a venture fund with monies from institutions and individuals of high net worth.
VCs, in turn, use the venture funds to invest in early- and growth-stage companies. VCs are
characterized primarily by their investments in smaller, high-growth firms that are considered
riskier than traditional investments. These investments are not liquid. VCs earn much higher
rates of return for this riskier and illiquid feature. The returns are sometimes astronomical if
the VC times the exit correctly. One of the factors that any VC assesses while determining
whether to invest in a young and growing company is the exit strategy. The exit strategy is
the way that a VC or investor can liquidate an investment, usually for a liquid security or
cash. It is great if a company does well, but any investor, including VCs, wants to know how
and when they are going to get their money out.
Moderate

Fill in the Blanks

86. _____ is any form of money in general circulation in a country.

Currency; Easy

87. _____ is defined as the rate at which the market converts one currency into another.
Exchange rate; Easy

88. The _____ is the mechanism in which currencies can be bought and sold.
foreign exchange market; Easy

89. The difference between the “ask” and the “bid” is referred to as the _____.
spread; Easy

90. The _____ method follows the American terms for noting the base and quoted currency.
direct quote; Easy

©2013 Flat World Knowledge, Inc. 16

 91. The _____ method follows the European terms for noting the base and quoted currency.
indirect quote; Easy

92. In an exchange rate quote, the _____ is typically the denominator.

base currency; Easy

93. The _____ is the exchange rate transacted at a particular moment by the buyer and seller of a
currency.
spot exchange rate; Easy

94. _____ refers to the exchange rate between two currencies, neither of which is the official
currency in the country in which the quote is provided.
cross rate; Easy

95. Cross-currency pairs that include the U.S. dollar are called the “_____.”
majors; Easy

96. The _____ is the currency market for transactions at forward rates.
forward market; Easy

97. In a currency option, the parties do not have to actually exchange the currencies if they
choose not to. This is referred to as _____.
“not exercising an option”; Moderate

98. _____ refers to the money that is borrowed and must be repaid.
Debt; Easy

99. _____ refer to markets in the global sphere, in which governments, companies, and people
borrow and invest across national boundaries.
International capital markets; Easy

100. _____ refer to banks, which deal directly with consumers and usually focus on mass-market
products such as current and savings accounts, mortgages and other loans, and credit cards.
Retail banks; Easy

©2013 Flat World Knowledge, Inc. 17

Another random document with
no related content on Scribd:
animals and plants in order to live, so that we can further extend our
altruism at most to a moderate protection of other animals, if we are
to avoid injury to our own race. We may remark in passing that the
altruism of many lovers of animals, who prefer their favourite pets to
human beings and to the social welfare, is typical of the
exclusiveness and stupidity of misdirected impulses of sympathy.
Morality must therefore in the future consist of a common social
impulse—it must itself become social. This impulse must overthrow
not only egotism, but also the exclusiveness of individual
sympathies. We are still, alas, far from this goal! The family is often a
thieves’ kitchen; patriotism is a prolific parent of wars; while
communities and societies, however noble their objects may be,
readily degenerate into petty sects and cliques.
And now comes yet another difficulty, namely, the frequent lack of
harmony between the ethical motives which inspire an action and its
real moral value.

“Ich bin
Ein Theil von jener Kraft
Die stets das Böse will
Und stets das Gute schafft,”

says Mephistopheles in Goethe’s Faust.[B] Let us say often instead of

always, and mention also that other Power which often wills the good
and yet does the evil, and we have the well-known picture of the
intelligent, ambitious egotist, who, without any sense of duty,
achieves great and good results; and that of the foolish, infatuated
altruist, who devotes the whole might of his zeal for duty to the
service of socially pernicious forces!
[B] “I am a part of that power which always wills the evil and
always does the good.”

As a result of exaggerating the above-mentioned phenomena

certain theorists have imagined that ethics can be founded upon
pure egotism. But this is a mistake. Without the altruistic impulses of
sympathy and duty among its individual members no common social
existence can thrive; on the contrary, it must degenerate.
The power of the emotions in man is much too strong to allow of
any other result. Any one who imagines that he is completely master
of his emotions makes, if possible, a still greater mistake than one
who avows that he has never lied, or that his actions are governed
by free-will. All human morality is bound up with these impulses and
emotions. Socialism, for instance, will become moral, or else it will
not come to pass. Without the support of the social conscience of
mankind it cannot become moral. Every effort must therefore be
directed towards strengthening the social conscience.
The falsity of the theory of absolute good and evil is demonstrated
by the whole disposition of a world in which living creatures are
designed to prey upon one another. When a spider devours a fly it is
good for the spider and bad for the fly. The ethical value of the act
itself is therefore purely relative.
It is just the same with human ethics. To attempt to explain all the
evil in the world by the sin of Adam is to attribute a miserable
incapacity to God. The same holds true of the attempts of certain
modern Protestants to set up the dogma of a progressive revelation,
in order to bring the older dogmas into harmony with the theory of
evolution and descent. All these halting exegeses are only new
models of the artificial drags which theology seeks to impose upon
the free research of science.
Altruism and egotism stand only in relative opposition. Among ants
and bees they are instinctively adjusted to one another with
wonderful harmony, and are rarely, if ever, found in conflict. This
result can and must be striven after by mankind, however great may
be the difficulties presented by our hereditary nature. For its
achievement a harmonious co-operation of the hereditary social
conscience with reason and knowledge is absolutely necessary.
I must briefly mention two other points. Firstly, morality and social
or race hygiene become one and the same thing directly we include
in our conception of hygiene a healthy condition of the brain or soul,
and subordinate the individual hygiene to that of society in general.
Then everything socially unhygienic is immoral, and everything
immoral socially unhygienic. If, for instance, I ruin a healthy, active
member of society, in order possibly to achieve the salvation of an
incurably diseased criminal, I am committing, although from altruistic
motives, an act which is injurious from the point of view both of
ethics and social hygiene, and therefore evil and immoral.
Secondly, the boundaries of jurisprudence and of ethics are by no
means clear. Jurisprudence is more narrowly confined. It has no right
to lay claim to or to pass a verdict upon everything which ethics may
discover or attain. Laws and the constraint they imply are a
necessary evil, a crutch for the lame and defective social
conscience. They must be reduced to an indispensable minimum.
The ethical and social instincts, on the other hand, can never be too
highly developed. Humanity must gradually develop in the future to
such a point that jurisprudence may be completely replaced by an
instinctive and inculcated social impulse.

“Es erben sich Gesetz und Rechte

Wie eine ew’ge Krankheit fort.”[C]

[C] “Laws and statutes pass on in heritage, like an eternal

disease.”—Goethe, Faust.
In order now properly to understand our actual subject, viz. sexual
ethics, we must state the fact that an action, as well as the motives
which inspire it, may be either (1) ethically positive, i.e. good; (2)
ethically negative, i.e. evil; or (3) ethically indifferent, i.e. without any
relation to morals.
In their relationship to morals an action and its motive may be
completely independent of one another, as we have already seen.
We must further note that there are various degrees of duty, and
that from this cause conflicts may arise. There are duties towards
one’s self, which serve to increase the worth, and particularly the
social worth, of the individual by self-culture and education. In these
days of effeminate culture it is too often forgotten that self-discipline
and restraint, and even a certain degree of asceticism, fit the
individual for freedom and happiness, while the craving for pleasure
makes him useless and dependent.
Then there are duties towards the family and those nearer to us,
towards the State, towards existing Humanity, and towards posterity.
This last duty is the highest of all. Everything that we enjoy to-day in
culture and knowledge we owe to the toil, the suffering, and often the
martyrdom of our forefathers. Our most sacred duty is, therefore, to
secure for our descendants a loftier, happier and worthier existence
than our own.
Speaking generally, a rational system of morals must subordinate
the welfare of the individual to that of the community at large. A man
who is unprejudiced and possesses the ethical and social instinct will
therefore hold it as a principle first of all to do no man any injury;
then to develop his own individuality as highly as possible, which will
be both for his own good and that of the community; and as far as in
him lies to be of service to others and to Humanity.
From this we may derive the following commandment of sexual
ethics:—
Thou shalt take heed in thy sexual desire, in its manifestations in
thy soul, and chiefly in thy sexual acts, that thou do no hurt to thyself
nor another, nor, above all, to the race of men; but shalt strive with
thy might to increase the worth of each and all.
 II. Sexual Ethics
Everything that we have up to the present said of ethics and the
social sense in general applies also to sexual ethics in particular.
The only essential thing is to discuss the matter without prejudice,
and to put aside the ancient traditions of mystagogy, dogma, and
custom. This should be comparatively easy when we consider our
present-day conventions, hypocritical as they are to the point of
nausea, and the manner in which they support the right of the
stronger and other rank abuses under the false cloak of morality.
In itself the sexual desire is neither moral nor immoral. It is simply
an instinct adapted to the reproduction of the species. The common
confusion of sexuality with immorality is, I repeat, entirely erroneous.
A man without sexual feeling must of course be extraordinarily
“moral” in his sex relationships, and yet he can be the greatest
scoundrel imaginable. His sexual coldness and indifference have not
the smallest ethical value.
According to the definition given above, we may classify every
sexual desire as ethically positive if it is of benefit to individuals, to
society, and especially to the race (that is, to posterity); as ethically
negative if it does injury to any or all of these; and as ethically
indifferent if it neither does injury nor is of any service. At the same
time we must observe the ethical gradation: (1) the race, (2) society,
(3) the more intimate surroundings or family, and (4) the individual
self.
When we come to examine the concrete cases more closely we
find that the circumstances attendant upon the gratification of the
sexual desire, and the consequences of this gratification, lead to
conflicts with morality far more frequently than does the sexual act
itself.
In the first place even the normal reproduction of human beings
may become immoral, in that it may do injury to the race or to
individuals. Malthus pointed out this fact. Habitable space upon the
earth is limited, while, on the other hand, the procreative capacity of
mankind is unlimited. If unlimited reproduction is permitted, it is
possible that the existing space may be insufficient to meet the
needs of the enormous multitudes of men which must result. The
latter may then fall victims to famine and distress, as in the case of
the Chinese, or the rabbits of Australia; and only disease, starvation,
or slaughter can bring about a return to the normal condition. It must
be obvious to every unbiassed person that this is not moral. And as
there are harmless methods of regulating the number of births and to
some extent the quality of the offspring, the just and proper use of
these methods must be described as ethically positive. Everything is
moral which makes for the happiness and well-being of society;
everything immoral which prejudices or endangers it.
There can, however, be too few people in the world; and there is
everywhere a great dearth of men and women wholly sound in mind
and body, light-hearted, unselfish, industrious, persevering,
intelligent, able and yet well-intentioned, peaceable, and honest.
On the other hand, we have a monstrous superabundance of
feeble, sickly, mentally perverted, criminally disposed, idle,
treacherous, vain, crafty, covetous, passionate, capricious, and
untrustworthy individuals, whose claims upon others are
inexhaustible, while their own services to society are either valueless
or actually harmful.
While the first-mentioned class produce far more than they
consume, it is appalling to think of the vast store of human energy
and human life which goes to waste in sick-rooms, lunatic asylums,
hospitals, and prisons. And if we look more closely we find outside
these institutions, and under no restraint, a still vaster army of
human sharks, who prey physically and mentally upon society, and
are a burden upon the industrious community. The greater number of
these useless pests owe their faults to an hereditarily defective
constitution of the protoplasmic germs which brought them into
being; and therefore a sound system of racial ethics demands
rational selection in breeding.
Equally destructive, however, are external conditions and habits of
life, such as the use of alcohol, resulting as they do in paralysis of
energy, confusion of the mind, and degeneration of the cells
(blastophthory).

The libido sexualis, or sexual desire in mankind is infinitely

stronger than is necessary for the reproduction of the race. Man has
no breeding season; he is always ready for sexual intercourse.
Although the number of women in the aggregate only slightly
exceeds that of men, the male has usually an instinctive inclination
to polygamy. Luther accurately estimated the normal requirements of
a healthy man in the prime of life at on the average two to three
sexual connections in each week; and yet this is far in excess of
what is necessary for the procreation of children in a monogamous
marriage. It is, moreover, well known that a man can even
considerably exceed the above number without injury to his health,
and there are women whose needs in this respect are actually
greater than those of men.
It therefore follows that the widespread artificial excitement of the
sexual desire from motives of sensuality is harmful from the
standpoint both of ethics and of social hygiene.
We cannot, it is true, be held responsible for a natural instinct
inherited from our ancestors. But we must seek to subdue this
instinct as far as possible, not to excite and stimulate it by artificial
means. Already there is more than enough purposeless, and
therefore ethically indifferent, sexual intercourse.
And yet Tolstoy is wrong in wishing to forbid this. As long as it
does no actual harm we must tolerate it, the more so because the
happiness of the individual and the cheerfulness with which he
labours are so often dependent upon the normal satisfaction of his
instincts.
Within the limits indicated above, the gratification of the sexual
instinct, whether in the case of man or woman, is in itself ethically
indifferent, provided it does not result in the procreation of children.
We have already dealt with the ethical value of procreation, which
depends upon the nature of the results expected. And we are
therefore bold enough to declare that every sexual connection which
does not injure either of the two persons who take part in it, or any
third person, and which, moreover, can do no injury to the child
which may be engendered by it, is in itself ethically indifferent, and
cannot therefore be immoral.
We have certainly imposed considerable modifications in this
sentence, for it is possible for a perfectly normal sexual connection
to do untold injury, especially to the woman and the child she bears;
so that an act which is in theory not immoral may become so in
practice, or may give rise to grave moral conflicts. This often
happens at the present time as the result of our prejudices,
established customs, and unjust laws.
From the standpoint of sexual ethics the ideal marriage is
undoubtedly a monogamous union, resting upon mutual and
enduring affection and loyalty, and consummated by the birth of
several children; a union in which the husband may be from six to
twelve years older than the wife, and both must be robust in mind
and body.
This ideal state of things is not as rare as our modern pessimists
would have us believe, but neither is it especially common.
Moreover, if this marriage is to reach that perfection which it can and
must attain, it must be completely free, that is to say, both parties
must be absolutely equal before the law, and no external compulsion
other than that of common obligations towards the children must
bind them to one another. To this end a complete separation of
property, and a just and proper valuation of every service performed
by the wife as well as the husband are of the first importance.
From the aforesaid it must by no means be inferred that every
person is to yield without restraint to his sexual desires.
Unfortunately this fundamentally false conception of free marriage
and free love is at the present time widespread, and it cannot be too
vigorously combated. In the first place, two persons are concerned in
the sexual act, and any exercise of constraint by one upon the other
is immoral and even criminal. The same holds true of every
seduction.
 Moreover, the highest freedom of man lies in his mastery of self.
The only man who is truly free is the man who is able to control his
lower instincts. The compulsion which must be exercised in a
mutually happy sex relationship conformable to ethical principle
must, however, be no external legal compulsion, but an inward self-
repression. Fidelity in marriage must be a matter of mutual trust and
yet a matter of honour. The State and the laws cannot compel it, and
have never been able to do so; external constraint begets only
hypocrisy, strife, and treachery. On the other hand the State and the
law must, as time goes on, become more and more adapted to the
protection of the helpless offspring of sex unions.
Both parents, in proportion to their fitness and ability, must be
made responsible for the support of their children. It is in the highest
degree immoral to make a distinction between legitimate and
illegitimate children, and so to expose them and their mothers to
public disgrace because of the fulfilment of a natural function. Is it
not senseless, from the standpoint both of ethics and of law, to
declare the existence of a child, and therefore of a human being, to
be legal or illegal, or to speak of “natural children,” as if the others
were unnatural! In what bureaucratic brain can such an idea have
first arisen? It is only a remnant of a barbarous code of morals,
based upon the grossest prejudice. Antiquity, alas, justifies
everything—even crime!

Every woman who is healthy and strong should be proud of

becoming a mother. If sexual intercourse were frankly and naturally
treated as one of the most important acts in human life, the paternity
of the child would be easily ascertainable. A woman should not wait
until the birth of the child before speaking of it, but should promptly
make a formal declaration as to its parentage to the registrar of
births as soon as she becomes aware of her pregnancy. This would
be easily practicable if all girls received proper instruction regarding
the most important function of their lives. Instead of this, everything
is now concealed from them, and they are brought up in gross
ignorance of their sexual nature and duties.
 If every pregnancy were at once legally recognised in this way,
and if the law would determine the responsibilities of both parents
towards their offspring, untrammelled by marriage laws and with the
well-being of society as its only aim, the most pressing need of our
time, from the standpoint of sexual ethics, would be satisfied. A
complete equality can only be attained by naming all children after
the mother. This is, moreover, the only rational and just system. It
was formerly the custom among many primitive peoples.
None of these reforms, however, need in any way debar the
formation of voluntary marriage contracts. Such contracts are,
indeed, distinctly advisable, for the voluntary resolve of two people to
remain faithful to one another, and to build up a permanent home for
their children, is at once the best, truest, and most natural foundation
of marriage.
But no one can foresee the future, and therefore simple facilities
for divorce must be provided in case it becomes intolerable or
inexpedient for the two persons to live together any longer. A divorce
must take place if one or both of the parties wish for it. The State and
the Law must only have the right to demand the fulfilment by the
parents of all obligations towards their children. Marriage contracts
for a fixed period are therefore as such not immoral. Such
agreements have even been recommended by the Christian
philosopher Charles Secrétan, in his book Le Droit de la Femme.
Sterile marriages, or other sex relationships, must be free. The law
has no concern with them as long as they do not involve injury to any
one’s property, health, or personal will. They are in themselves
ethically indifferent.
On the other hand, all sexual intercourse which is bought or sold,
such as marriage for money, the keeping of paid mistresses, and the
whole system of prostitution, is immoral, because it is corrupting and
devoid of love, and amounts simply to plunder by the aid of money.
Prostitution is a hotbed of sexual vices and abnormal practices. By
its means the sexual instinct is perverted and led astray into every
imaginable bypath, while women are degraded in the basest of all
slaveries.
 Most repulsive of all, from the point of view of ethics, is the trade in
prostitutes known as the “white slave traffic,” with its criminal devices
for the enticement, intimidation, and seduction of young girls. The
traffic in waitresses for cafés and beer-gardens is often little better. It
is sad enough to reflect that these loathsome outgrowths of sexual
immorality often still enjoy the protection of the State, and that many
medical men defend their continuance under the pretext of hygiene.
It is just in this very respect that we see that social hygiene and
ethics are one and the same thing. Only the idiotic one-sidedness of
your specialist could declare such a monstrosity as State-established
prostitution to be hygienic. A system which makes for the mental and
physical ruin of the race cannot be hygienic, and the delusion that by
its aid men are protected from venereal disease is in direct conflict
with the actual facts.
Moreover, sexual intercourse which is bought and sold has no
relation to love. As a mode of gratifying the sex instinct it stands
even lower in the moral scale than the habit of self-abuse. And any
man who makes use of prostitution becomes an accomplice in
creating this miserable class of outcasts whom we speak of as
“unfortunates.” In short, whoremongery and prostitution are a social
cancer, and therefore in the highest degree immoral. They furnish an
instance of the manner in which money corrupts our whole
civilisation. This corrupting influence, with its robbery of one man by
another, makes itself felt in every department of life, and is exercised
by every form of private capital.
The climax of immorality in the cult of Mammon is reached,
however, by the capital employed in maintaining the two great evils
of alcohol and prostitution, both of which act as bloodsuckers upon
the vitality of the individual, the race, and all that is holiest in men.
These two forms of capital work hand in hand, fashioning the
goddess of love in the likeness of a lewd, sordid harlot, with the man
as at once her ravisher and her victim. They are also the worst
enemies of our descendants, whose procreation is often undertaken
in a moment of intoxication, and whose lives are exposed to the risk
of alcoholic degeneration or venereal disease!
 These, therefore, are the chief foes of sexual morality: the struggle
for wealth (as exemplified in the domination of private capital) and
the use of alcohol. Let us combat both in the name of ethics. “In hoc
signo vincemus!”

The following will, I hope, make my meaning still clearer.

In sexual ethics many diseases and abnormalities play, of course,
a great part. First of all there are the venereal diseases, and
particularly syphilis and gonorrhœa, which often destroy family
happiness and endanger the offspring. It is too often forgotten that
chronic gonorrhœa can poison marriage, and that decay of the
spinal marrow (locomotor ataxia) and the so-called softening of the
brain (progressive or general paralysis) are nothing else than a very
late result of syphilis, appearing from ten to twenty years after
infection.
In a brief statistical discussion of the question, based upon
medical information, I have shown that seventy-five per cent of
venereal infections are acquired while in a state of alcoholic
excitement. In the vast majority of these cases the infection is
communicated by means of prostitution, which, as the result of the
incredibly numerous and varied sex relationships of the women,
serves simply as a vast manufactory of venereal diseases.
It is true that married women are often infected by their husbands
or lovers, but this is only a result of the previous visits of the latter to
houses of ill-fame. Hygiene and morals both suffer serious injury in
this way. Any one who is infected, and nevertheless has sexual
connection with a person not infected in the same way, commits a
basely immoral act, if not a crime. This is done, however, daily, when
the infection is concealed. Nay, more, the medical men who officially
visit and examine prostitutes are well aware that they can at most
only temporarily remedy a few of the worst symptoms, and that they
are powerless to cure the disease itself. In spite of this such women
are set at liberty once more to carry on their disastrous trade! And
very few prostitutes ever completely escape venereal infection.
 These are the fruits of paid “love,” maintained chiefly by the
drinking habits of the present day. It is plain that the chief task of
sexual ethics must be the cleansing of this Augean stable. There are,
however, a host of other social evils of a similar kind, such as the
seduction and exploitation of waitresses, women factory workers,
and so forth. These abuses belong to the same domain and present
the same opportunities of infection.

The various perversions of the sexual instinct constitute another

prolific source of disaster. Most of these are hereditary, and therefore
inborn. We will only briefly mention sadism (the combination of acts
of cruelty and violence with sexual gratification), masochism (sexual
gratification combined with the passive endurance of similar cruelty
and violence), inverted sexual feeling (homosexuality), fetishism
(sexual attraction for inanimate objects), exhibitionism, sodomy, etc.
The unfortunate people who suffer from these perversions are
treated unjustly and, for the most part, far too harshly. Perverse
instincts which injure no one when carried into practice (fetishism, for
example), are ethically indifferent and harmless, in that their
possessors, generally speaking, do not multiply. It is, however,
immoral for such persons to marry. Any one who suffers from an
hereditary perversion of the sex instinct should avoid marriage and
all procreation of children.
But if the pervert can only gratify his instinct by injuring other
people, he must be regarded as a dangerous lunatic, and placed
under curative treatment. There must, however, be no question of
legal punishment. The foregoing treatment is above all necessary in
the case of sadists (who frequently commit murder) and in that of
persons of unsound mind who violate children. Homosexual persons
(i.e. men or women whose sexual inclination is for their own sex)
are, on the other hand, comparatively harmless as long as they
direct their attentions to adults, and provided there is no seduction or
use of compulsion. The same holds good in the case of other
perversions such as inclination for animals. Our laws are still entirely
at fault in these matters, and inflict punishment upon the basis of
ancient theological dogmas.
The case of perversions acquired by suggestion, evil example, or
frequent repetition is somewhat different. These latter are much
more readily curable.
Perverted sexual habits often arise from a craving for variety, or as
makeshifts adopted when the opportunity for normal sex intercourse
is denied. Our efforts must be directed towards removing these
causes by raising the general standard of social morals.
Religious morality has been the cause of untold mischief in this
matter of sexual perversions by representing as great sins and
crimes actions which are in reality the result of a diseased mental
state.
The habit of self-abuse is also extremely variable in its origin. It
arises usually as a makeshift, but often as the result of evil example.
It may also (although less frequently) be inherited, or originate from
nervous trouble, while in other cases it is prompted by mechanical
causes (phimosis, worms, or gymnastic exercises). There is no
greater blunder than that of exaggerating its importance by
representing it as a horrible and extremely dangerous vice. It must
be cured by pacification and soothing, by strengthening of the will,
and in some cases by providing the means of normal sexual
intercourse (not, however, by means of prostitution). This is the only
proper treatment of self-abuse, which is not as dangerous as is
commonly maintained. In this, as in all other cases, our conception
of sexual ethics will point out the right path.

Abnormalities of the brain or mind, especially constitutional

(hereditary) mental inferiorities, such as weakness of will-power,
moral idiocy (inherent lack of conscience), epilepsy, hysteria,
hypochondria, kleptomania, etc., together with all acquired mental
troubles, are the cause of innumerable sexual disorders and
perversions; of vices, crimes, and misdeeds of every description; of
rapine and seduction; of unhappy marriages, or rather hells upon
earth; and of the birth of countless doomed and wretched children.
Here we may see once again that ethics and social hygiene are at
one. Until now the theologians and the lawyers have treated these
mental conditions by denouncing them as deadly sins and
imprisoning the unhappy victims. This is disastrous to morality, to the
unfortunate persons themselves, and to society at large. Expert
mental treatment with a view to a fundamental cure is the first
necessity.
Here, again, alcohol and narcotics in general are the stone which
sets the whole avalanche in motion. The use of alcohol produces
mental inferiorities by its corrupting influence upon the cells
(blastophthory), and many people whose weakness of mind is
traceable to this cause cannot resist its use, and so become
dangerous inebriates.
Once more, it is the source and fountain of the evil that must be
stopped.
But there are other hereditary diseases and degeneracies of every
kind, not only of the brain, but of the whole body, such as the
disposition to tuberculosis, rickets, short-sightedness, and diseases
of the blood, all of which are related to sexual life and morals,
because they are all more or less injurious to the individual and to
society.
If persons suffering from such diseases have children at all they
must proceed with the greatest caution, and they should always be
instructed as to the hereditary nature of their maladies and the risk of
their transmission.

And now can we not hear the dictates of a truly human moral
code, based upon the facts that we have just considered?
It is true that we cannot change the present hereditary nature of
man, but it is none the less our duty, now that Science has revealed
this nature to us, to prepare for our posterity a greater degree of
happiness and a higher standard of social life than we now possess.
To this end we must first strive with all our might to destroy the all-
corrupting supremacy of private capital and wealth, with its
exploitation of human life and energy; and we must further combat
the use of all narcotic poisons, especially that of alcohol.
We must not rest until these two deadly monsters are overthrown.
In the sphere of sexual life we must endeavour to replace by truth
and justice the present-day hypocrisy which parades under the false
banner of “morality.” We must also restore to woman the same
natural and equal rights possessed by man.
Moreover, we must no longer be content to remain indifferent and
idle witnesses of the senseless and unthinking procreation of
countless wretched children, whose parents are diseased and
vicious, and whose lives are for the most part destined to be a curse
both to themselves and their fellow-men.
We must therefore recommend to all persons who are sickly or
infirm in body or mind, and especially to all suffering from hereditary
ailments, the use of means for the prevention or regulation of
conceptions,[D] so that they may not, out of pure stupidity and
ignorance, bring into the world creatures doomed to misery and
misfortune, and predisposed to disease, insanity, and crime.
[D] We refer, of course, to such preventive methods as are
completely harmless to the persons making use of them. Methods
for the prevention of conception, in general fulfil this condition.
We must endeavour in this way to bring about a vast and universal
sterilisation of all worthless, incapable or diseased people, without
attempting to prohibit in an ascetic and impracticable manner the
gratification of their normal sexual instinct and their desire for
affection.
The qualification for parentage must not be the possession of a
certain amount of money or property, but solely the social worth and
intrinsic hereditary qualities of the two individuals.
The multiplication of all who are healthy, capable, and ethically fit
must be encouraged as far as possible.
 An excessive frequency of childbirths in the case of one woman
must be prevented and regulated by the use of the means
mentioned above.
In this way we shall carry out a true racial selection and prepare
the way for a better and happier Humanity. And so at last we shall
have brought our true sexual ethics into living being and reality.
 Royal 8vo, 550 pp.
Just Ready.
Cloth. Price 21s. net.

THE SEXUAL QUESTION.

A SCIENTIFIC, PSYCHOLOGICAL, HYGIENIC, and
SOCIOLOGICAL STUDY for the CULTURED CLASSES.

By AUGUST FOREL, M.D., Ph.D., LL.D.

Formerly Professor of Psychiatry and Director of the Provincial
Lunatic Asylum, Zürich.
English adaptation by C. F. Marshall, M.D., F.R.C.S. (London).
With 23 Illustrations, 17 of which are printed in colours.
This book is the fruit of long experience and reflection. It has two
fundamental ideas—the study of nature, and the study of the
psychology of man in health and in disease.
“It is imperative that every man and woman shall know (1) the
complete facts of normal sexual life, i.e. the physical conditions of
reproduction; and (2) so much of sex pathology as is necessary in
order to avoid the many pitfalls existing round them. The highest
praise we can give Prof. Forel’s book is to say that it meets this
need. It is ‘a scientific, psychological, hygienic, and sociological
study’ of the sexual question.”—The New Age.

MARRIAGE AND DISEASE.

Cloth. Price 10s. 6d. net.
Being an Abridged Edition of “Health and Disease in Relation to
Marriage and the Married State.” (2 vols., 30s. net.)
 By many Authors. Edited by Prof. H. SENATOR and Dr. S.
KAMINER.
Translated by J. DULBERG, M.D., J.P. (Manchester). Demy 8vo.
452 pp.
To give an idea of the scope of the work, it may be stated that it
contains chapters on such subjects as:—The Hygienic Significance
of Marriage, Congenital and Inherited Diseases and Predispositions
to Disease, Consanguinity and Marriage, Climate, Race and
Nationality in Relation to Marriage, Sexual Hygiene in Married Life,
Constitutional (Metabolic) Diseases, Diseases of the Nervous
System, Insanity, Alcoholism and Morphinism, Occupational Injuries,
Medico-Professional Secrecy, The Economic Importance of Sanitary
Conditions, &c. &c.
“The present book is an attempt to make available for general
consumption the gist of the larger work from which it is taken.... The
material contained in the book is most valuable, and a study of it
should be useful to those capable of appreciating it....”—The Lancet.
“It is a work which should be on the shelves of every public library
for the perusal of serious men and women, and especially young
men and women about to marry. It is a wonderful book.”—The
Sunday Chronicle.

FOOD AND HYGIENE.

A Scientific Book in simple language, dealing with such subjects
as the composition, character, and nutrient value of food, and
containing, as The British Medical Journal states, “a vast amount of
trustworthy information well arranged in a clear and plain style.” By
WILLIAM TIBBLES, M.D., L.R.C.P., M.O.H. Large crown 8vo., 684
pp., 8s. net.

HYGIENE OF THE LUNG IN HEALTH

AND DISEASE.
 By Prof. Dr. L. von Schroetter. Trans. by H. W. Armit, M.R.C.S.
2s. net.
Hygiene is essentially a social science, and the Author has been
happy in his selection of the limits necessary for lay instruction.

MONISM? An Antidote to Prof.

Haeckel’s “The Riddle of the
Universe.”
By S. Ph. Marcus, M.D., 1s. net; by post 1s. 2d. Translated by R.
W. Felkin, M.D., &c.

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