Deck 14: Dealing With Financial Crises: Does the World Need a New International Financial Architecture

Question 1

Multinational organizations such as the IMF have "early warning systems" that enable them to anticipate financial crises.

Answer 1

False

Question 2

The imposition of lending conditions by the IMF before a loan is granted is called:

A) special drawing rights.
B) ex post conditionality.
C) ex ante conditionality.
D) moral hazard.

Answer 2

C

Question 3

A capital inflow that results in more than a 10 percent ownership share in a entity is called:

A) foreign direct investment.
B) financial instability.
C) a merger.
D) portfolio capital.

Answer 3

A

Question 4

If a government requires domestic banks to lend to certain industries, creating a situation in which the firms know they will receive funding no matter how they use the funds, then the government has created a problem called:

A) structural moral hazard.
B) herding behavior.
C) contagion.
D) regulatory arbitrage.

Question 5

A IMF member country-s voting share is determined by its:

A) special drawing rights.
B) conditionality.
C) quota subscriptions.
D) performance criteria.

Question 6

The composite currency of the International Monetary Fund is called:

A) special drawing rights.
B) conditionality.
C) quota subscriptions.
D) performance criteria.

Question 7

Allowing relatively open issuance and competition in stock and bond markets is called:

A) regulatory arbitrage.
B) capital market liberalization.
C) contagion.
D) conditionality.

Question 8

_______________ is the strengthening and growth of a nation-s financial sector institutions, payments systems, and regulatory agencies.

A) Financial sector development
B) Capital market liberalization
C) Contagion
D) Conditionality

Question 9

_________________ is the potential for those who want funds for unworthy projects to be the most likely to want to borrow.

A) Moral hazard
B) Herding behavior
C) Contagion
D) Adverse selection

Question 10

____________________ refers to a situation in which the financial sector is unable to allocate funds to the most productive projects.

A) Financial crisis
B) Contagion
C) Regulatory arbitrage
D) Financial instability

Question 11

_________________ is the set of limitations on the range of allowable actions of the government of a country that is a recipient of IMF loans.

A) Regulatory arbitrage
B) Capital market liberalization
C) Conditionality
D) Economic fundamentals

Question 12

Because of the financial crises that began in the mid-1990s, developing and emerging economies are unable to attract private capital flows.

Question 13

Most economists oppose capital controls on the inflows of foreign capital.

Question 14

A concerted effort by financial market speculators to profit by selling a nation-s currency and forcing policymakers to abandon the foreign exchange regime is called structural moral hazard.

Question 15

Even when economic fundamentals are consistent with the official exchange rate regime, a widespread perception that policymakers face internal costs that are too high to maintain the regime can lead to a crisis.

Question 16

Ex post conditionality is the imposition of IMF lending conditions after a loan has already been granted.

Question 17

Herding behavior is when domestic institutions locate abroad, or conduct certain types of operations abroad, in order to avoid domestic regulation.

Question 18

New investments into emerging economies are the driving force behind increases and declines in foreign direct investment.

Question 19

International FDI flows go mainly from developed nations to developed nations, not from developed nations to developing and emerging nations.

Question 20

International FDI flows consist mainly of the combining of firms in different nations.

Question 21

Member countries- voting share in the International Monetary Fund is determined by how much money they provide through their quota subscription.

Question 22

Moral hazard occurs when a borrower engages in much riskier behavior after issuing a debt instrument.

Question 23

Over the past 30 years, nearly every country that liberalized capital flows experienced a financial crisis.

Question 24

The corners hypothesis argues that policymakers should:

A) abandon fixed exchange rates altogether.
B) abandon flexible exchange rates altogether.
C) avoid hard-peg regimes and fully flexible exchange rate regimes.
D) avoid intermediate exchange rate regimes in favor of hard pegs or a free float.