Deck 27: Financial Crises in Emerging Markets

Question 1

Factors that led to worsening financial market conditions in East Asia in 1997-1998 include ________.

A)a rise in interest rates abroad
B)unanticipated increases in the price level
C)weak supervision by bank regulators
D)increased uncertainty from political shocks

Answer 1

C

Question 2

Factors that led to worsening conditions in Mexico's 1994-1995 financial markets included ________.

A)strong supervision by bank regulators
B)bankers' lack of expertise in screening and monitoring borrowers
C)improvement of banks' balance sheets because of decreasing loan losses
D)decrease in interest rates

Answer 2

B

Question 3

In emerging market countries, the deterioration in bank's balance sheets has more ________ effects on lending and economic activity than in advanced countries.

A)negative
B)positive
C)affirming
D)advancing

Answer 3

A

Question 4

Factors that led to worsening conditions in Mexico's 1994-1995 financial markets included ________.

A)fall in interest rates abroad
B)a large increase in lending
C)decreases in the price level
D)strong supervision by bank regulators

Question 5

Severe fiscal imbalances can directly trigger a currency crisis since ________.

A)the government may stop printing money
B)the government may have to cut back on spending
C)the currency must surely increase in value
D)investors fear that the government may not be able to pay back the debt and so begin to sell domestic currency

Question 6

Factors likely to cause a financial crisis in emerging market countries include ________.

A)decreases in foreign interest rates
B)a foreign exchange crisis
C)too strong oversight of the financial industry
D)fiscal imbalances

Question 7

Factors that led to worsening conditions in Mexico's 1994-1995 financial markets include ________.

A)failure of the Mexican oil monopoly
B)the ratification of the North American Free Trade Agreement
C)weak supervision by bank regulators
D)decline in interest rates

Question 8

The mismanagement of financial liberalization in emerging market countries can be understood as a severe ________.

A)asymmetric information problem
B)lemons problem
C)principal/agent problem
D)free-rider problem

Question 9

The key factor leading to the financial crises in Mexico and the East Asian countries was ________.

A)severe fiscal imbalances
B)a deterioration in banks' balance sheets because of increasing loan losses
C)a sharp increase in the stock market
D)a sharp decline in interest rates

Question 10

Financial crises in emerging-market economies generally develop along two basic paths: ________.

A)mismanagement of financial liberalization/globalization and severe fiscal imbalances
B)stock market declines and severe fiscal imbalances
C)mismanagement of financial liberalization/globalization and stock market declines
D)stock market declines and unanticipated declines in the value of the domestic currency

Question 11

Factors that led to worsening conditions in Mexico's 1994-1995 financial markets, but did not lead to worsening financial market conditions in East Asia in 1997-1998 included ________.

A)rise in interest rates abroad
B)bankers' lack of expertise in screening and monitoring borrowers
C)deterioration of banks' balance sheets because of increasing loan losses
D)unanticipated increases in the price level

Question 12

Factors that led to worsening financial market conditions in East Asia in 1997-1998 included ________.

A)weak supervision by bank regulators
B)a rise in interest rates abroad
C)unanticipated increases in the price level
D)a decrease in interest rates

Question 13

In emerging market countries, many firms have debt denominated in foreign currency like the dollar or yen. A depreciation of the domestic currency ________.

A)results in an increase in the value of the firm's assets
B)results in increases in the firm's indebtedness in domestic currency terms, even though the value of their assets remains unchanged
C)means that the firm does not owe as much on their foreign debt
D)strengthens their balance sheet in terms of the domestic currency

Question 14

Factors that led to worsening financial market conditions in East Asia in 1997-1998 included ________.

A)strong supervision by bank regulators
B)bankers' lack of expertise in screening and monitoring borrowers
C)improvement of banks' balance sheets because of decreasing loan losses
D)unanticipated increases in the price level

Question 15

In recent years, a number of developing and transition countries have experienced financial crises, the most dramatic of which was the ________.

A)Mexican crisis of 1994-1995
B)Mexican crisis of 1988-1989
C)Argentina crisis of 1995-1996
D)Brazilian crisis of 1996-1997

Question 16

Factors that led to worsening financial market conditions in East Asia in 1997-1998 included ________.

A)rise in interest rates abroad
B)bankers' lack of expertise in screening and monitoring borrowers
C)unanticipated increases in the price level
D)strong supervision by bank regulators

Question 17

Factors that led to worsening financial market conditions in East Asia in 1997-1998 included ________.

A)bankruptcy of large firms in South Korea and Thailand
B)the ratification of the East Asia Free Trade Agreement
C)bankers' expertise in screening and monitoring borrowers
D)unanticipated increases in the price level

Question 18

The two key factors that trigger speculative attacks on emerging market currencies are ________.

A)deterioration in bank balance sheets and low interest rates abroad
B)deterioration in bank balance sheets and severe fiscal imbalances
C)low interest rates abroad and severe fiscal imbalances
D)low interest rates abroad and rising asset prices

Question 19

A sharp depreciation of the domestic currency after a currency crisis leads to ________.

A)lower import prices
B)lower interest rates
C)decrease in the value of foreign currency-denominated liabilities
D)higher inflation

Question 20

An important factor leading up to the Mexican financial crisis of 1994-1995 was ________.

A)the failure of the Mexican oil monopoly
B)increasing loan losses at Mexican banks
C)the ratification of the North American Free Trade Agreement
D)the failure to ratify the North American Free Trade Agreement

Question 21

Argentina's financial crisis was due to ________.

A)poor supervision of the banking system
B)a lending boom prior to the crisis
C)fiscal imbalances
D)lack of expertise in screening and monitoring borrowers at banking institutions

Question 22

Explain what is meant by prudential regulation.

Question 23

What two key factors trigger speculative attacks leading to currency crises in emerging market countries?

Question 24

What is meant by market-based discipline?

Question 25

List four things that emerging market economies can do to prevent financial crises.

Question 26

What is a currency mismatch and why does it create risks?

Question 27

What is the relationship between fiscal imbalances in emerging-market economies and financial crises?

Question 28

Factors that led to worsening conditions in Mexico's 1994-1995 financial markets, but did not lead to worsening financial market conditions in East Asia in 1997-1998 include ________.

A)rise in interest rates abroad
B)bankers' lack of expertise in screening and monitoring borrowers
C)deterioration of banks' balance sheets because of increasing loan losses
D)stock market decline

Question 29

Economic hardship resulting from a financial crises includes ________.

A)increased crime
B)ethnic violence
C)currency appreciation
D)high unemployment

Question 30

The economic hardship resulting from a financial crises is severe, however, there are also social consequences such as ________.

A)increased crime
B)difficulty getting a loan
C)currency devaluations
D)loss of output

Question 31

A feature of debt markets in emerging-market countries is that debt contracts are typically ________.

A)very short term
B)long term
C)intermediate term
D)perpetual