Deck 25: Financial Crises In Emerging Market Economies

Question 1

Describe the sequence of events in a financial crisis in an emerging market economy and explain why they can cause economic activity to decline.

Answer 1

NOT Answerd

Question 2

Financial crises

A) cause failures of financial intermediaries and leave only securities markets to channel funds from savers to borrowers.
B) are a recent phenomenon that occur only in developing countries.
C) invariably lead to debt deflation.
D) all of the above.
E) none of the above.

Answer 2

E

Question 3

The experience with financial crises in emerging market economies suggests a number of government policies that can help make financial crises in emerging market countries less likely,including

A) beefing up prudential regulation and supervision of banks.
B) better bank risk disclosure.
C) limiting the currency mismatch.
D) all of the above.
E) only B and C of the above.

Answer 3

D

Question 4

In an emerging market economy,a currency crisis can be triggered by two things: a deterioration of bank balance sheets and severe fiscal imbalances.

Question 5

Financial crises

A) are major disruptions in financial markets that are characterized by sharp declines in asset prices and the failures of many financial and nonfinancial firms.
B) occur when adverse selection and moral hazard problems in financial markets become more significant.
C) frequently lead to sharp contractions in economic activity.
D) are all of the above.
E) are only A and B of the above.

Question 6

Factors that can lead to worsening conditions in financial markets include increasing interest rates and asset price booms.

Question 7

Stage Three of a financial crisis in an emerging market economy features

A) a general increase in inflation.
B) debt deflation.
C) an increase in general price levels.
D) a full-fledged financial crisis.

Question 8

For both emerging market economies and advanced economies,Stage Two of a financial crisis is the same - a banking crisis.

Question 9

What is the problem with government safety nets,such as deposit insurance,during the formative stages of a financial crisis?

Question 10

In Argentina,the primary force leading to their financial crisis in 2001 was ________.

A) fiscal mismanagement on the part of the government
B) financial liberalization
C) fraud in financial markets
D) all of the above
E) only B and C of the above

Question 11

In Stage Three of a financial crisis in an emerging market economy,the currency mismatch refers to ________.

A) the mismatch between size of the actual notes and the high price levels need to buy basic goods
B) the difference in the currency FX markets over time
C) the mismatch between the currency of the stock and bond markets
D) the fact that most debt in emerging market economies is denominated in U.S. dollars

Question 12

During a bank panic,many banks fail in a very short time period.

Question 13

In an emerging market economy,a financial crisis generally begins with

A) mismanagement of financial liberalization or innovation.
B) asset pricing booms and busts.
C) an increase in uncertainty caused by failure of financial institutions.
D) all of the above.

Question 14

When asset prices fall following a boom,

A) moral hazard may increase in companies that have lost net worth in the bust.
B) financial institutions may see the assets on their balance sheets deteriorate, leading to deleveraging.
C) both A and B are correct.
D) none of the above are correct.

Question 15

Contrast the stages of a financial crisis between an advanced economy and an emerging market economy.

Question 16

The experience with financial crises in emerging market economies suggests a number of government policies that can help make financial crises in emerging market countries less likely,including

A) rapid financial liberalization.
B) better bank risk disclosure.
C) limiting the currency mismatch.
D) all of the above.
E) only B and C of the above.

Question 17

Stage Two of a financial crisis in an emerging market economy usually involves a ________ crisis.

A) currency
B) stock market
C) banking
D) commodities

Question 18

A speculative attack on the currency of a country is the focus of Stage Two of a financial crisis in an emerging market economy.

Question 19

In contrast to most advanced economies that typically denominate debt in domestic currency,emerging market economies denominate many debt contracts in foreign currency.

Question 20

In South Korea,the primary force leading to their financial crisis in 1997 was ________.

A) financial liberalization
B) fiscal mismanagement on the part of the government
C) fraud in financial markets
D) all of the above
E) only B and C of the above

Question 21

Describe the differences in the evolution of the financial crises in South Korea (1997-1998)and Argentina (2001-2002).

Question 22

What are some of the steps that emerging market economies can take to avoid a financial crisis?

Question 23

Discuss the difference in Stage Two of a financial crisis between an advanced economy and an emerging market economy.

Question 24

Why did the financial crisis in Iceland (2008)resemble a crisis in an emerging market economy as opposed to an advanced market economy?