Deck 17: Another Bretton Woods Conference

Question 1

Among the causes of economic instability are:

A) inflation.
B) growing international debt by the United States.
C) instability in the newly created euro single currency area.
D) All of the above.
E) None of the above.

Answer 1

All of the above.

Question 2

Following the Asian financial crises in the late 1990s, many countries in the Far East and elsewhere:

A) were forced to take on huge amounts of additional foreign debt.
B) let their currencies float and gave up on trying to accumulate foreign reserves.
C) began using central bank intervention to undervalue their currencies and accumulate reserves.
D) implemented fixed exchange rates for the first time.

Answer 2

began using central bank intervention to undervalue their currencies and accumulate reserves.

Question 3

Which of the following contributed to the 2008 global financial crisis?

A) Enactment of the Glass-Steagall Act in 1999.
B) Fraudulent banking practices.
C) Excessive reserves for what turned out to be very low risks for insurance contracts.
D) All of the above.
E) None of the above.

Answer 3

Fraudulent banking practices.

Question 4

Which of the following contributed to the 2008 global financial crisis?

A) Transparent exchanges that had replaced the secretive over-the-counter financial markets.
B) Short-term incentives.
C) The sharp increase in regulation.
D) All of the above.
E) None of the above.

Question 5

Among the consequences of the 2008-2009 global financial crisis is:

A) increased government debt related to government transfers to financial conglomerates.
B) the fragmentation of the financial sector as financial conglomerates were broken up and reorganized.
C) the definitive abandonment of the "too big to fail" principle.
D) a sharp reversal of deregulation as governments rebuilt their regulatory structures.

Question 6

At the start of the twenty-first century, the financial industry in the U.S. and many other high-income European countries was increasingly characterized by:

A) agglomeration of financial activities into large financial firms.
B) securitization of loans.
C) deregulation and reduced government oversight.
D) All of the above.
E) None of the above.

Question 7

An immediate cause of the 2008 financial crisis was:

A) a housing bubble that burst.
B) new legislation that reregulated the banks.
C) excessive borrowing by a group of developing countries.
D) the discovery of a massive Ponzi scheme by a well-known New York financier.

Question 8

The collateralized debt obligations (CDOs) that were popular in the early 2000s were often split into tranches:

A) with different interest rates and a priority status.
B) that were individually rated by one of the principal ratings firms.
C) designed to just barely warrant a specific rating under the conditions at the time the CDO was issued.
D) All of the above.
E) None of the above.

Question 9

The 2008-2009 global financial crisis has:

A) revealed that financial intermediaries efficiently channeled savings to society's most advantageous investments.
B) led to the breakup of the major financial conglomerates.
C) validated the late twentieth-century deregulation of the financial industry.
D) All of the above.
E) None of the above.

Question 10

Credit default swaps:

A) are a type of loan.
B) can be used to place a bet on the default of an investment even without owning the investment.
C) were invented by British investment houses in the nineteenth century.
D) were issued by banks to cover their losses from investing in A. I.G.

Question 11

The 1933 Glass-Steagall Act:

A) limited savings banks to taking deposits and making mortgages.
B) limited commercial banks to making business and consumer loans.
C) prohibited investment banks from soliciting deposits from the general public.
D) All of the above.
E) None of the above.

Question 12

Which of the following statements about the financial history of the U.S. after 1990 is true?

A) The U.S. Federal Reserve Bank generally kept the money supply very tight.
B) Consumer goods inflation was high.
C) Housing prices increased very rapidly between 2002 and 2006.
D) All of the above.
E) None of the above.

Question 13

Among the policy responses to the 2008-2009 financial crash and global recession was:

A) a large set of new financial regulations.
B) the breakup of the large financial conglomerates.
C) expansion of the money supply and the reduction of short-term interest rates.
D) All of the above.
E) None of the above.

Question 14

John Maynard Keynes and Hyman Minsky offer models that show:

A) an unregulated financial system is inherently unstable.
B) unrestrained capitalism was superior to communism or socialism.
C) the U.S. financial system can generate endless rises in asset values and corporate profits.
D) All of the above.
E) None of the above.

Question 15

John Maynard Keynes' description of how investors set expectations:

A) conflicts with the rational expectations hypothesis that underlies modern macroeconomic and financial analysis.
B) is perfectly compatible with the rational expectations hypothesis that underlies modern macroeconomic and financial analysis.
C) suggests that financial markets work at least as well as the rational expectations hypothesis predicts.
D) explains why the short-term focus of financial markets results in prices that efficiently guide long-run investment decisions.

Question 16

Islamic finance is characterized by:

A) financial instruments with fixed interest rates.
B) banks that assume all risk and guarantee depositors a minimum return.
C) more transparent procedures that permits lenders and borrowers to share the gains and losses of investments.
D) predatory interest rates, which are intended to discourage excessive borrowing.

Question 17

Compared to conventional Western finance, Islamic finance:

A) is somewhat less likely to fail because of outright defaults.
B) completely eliminates the adverse selection problem.
C) is not efficient for financing innovation.
D) All of the above.
E) None of the above.

Question 18

At Bretton Woods, John Maynard Keynes had sought the establishment of the:

A) World Trade Organization.
B) International Clearing Union (ICU).
C) International Monetary Fund (IMF).
D) All of the above.
E) None of the above.

Question 19

At Bretton Woods, John Maynard Keynes had sought the establishment of the:

A) bancor.
B) International Clearing Union (ICU).
C) penalties for countries that ran persistent trade surpluses.
D) All of the above.
E) None of the above.

Question 20

At the time of the Bretton Woods conference, John Maynard Keynes actively advocated an international financial order that:

A) discouraged the accumulation of large foreign debts.
B) encouraged international financial flows.
C) encouraged countries to run trade surpluses.
D) pushed governments to deregulate all international transactions.

Question 21

At the time of the Bretton Woods conference, Harry Dexter White and the U.S. delegation pushed for:

A) a neutral reserve currency like the bancor.
B) the dollar as the world's reserve currency.
C) tight restrictions on international financial flows.
D) The International Clearing Union to replace the secretive over-the-counter foreign exchange markets.