Deck 8: International Financial Relations

Question 1

Which of the following best characterizes the majority of international investment in the world?

A)Individuals in rich countries investing in other rich countries
B)Individuals in rich countries investing in developing countries
C)Individuals in democracies investing in non-democracies
D)Individuals in poor countries investing in other poor countries

Answer 1

A

Question 2

What is debt forgiveness?

A)Capital-rich countries giving debt financing breaks to multinational corporations
B)Forgiving loans made to poor nations that can no longer afford them
C)Permitting multinational companies to invest in countries that have substantial foreign debts
D)Removing the conditionalities attached to International Monetary Fund loans

Answer 2

B

Question 3

What is foreign direct investment?

A)A loan from the International Monetary Fund made directly to a country's central bank
B)A loan intended to bypass corrupt local officials by going straight to a targeted industry
C)An investment in which a company maintains control of its assets in another country
D)Investments in other countries in which investors have no role in managing the assets

Answer 3

C

Question 4

Why are there conflicts of interest involved in international finance?

A)Borrowing countries frequently refuse to pay their debts.
B)A flood of international capital reduces the domestic savings rate.
C)Borrowers and lenders disagree over how the benefits from loans and investments should be divided.
D)The International Monetary Fund is reluctant to manage the problems of heavily indebted countries.

Question 5

Why was Ireland in debt during the European sovereign debt crisis?

A)Their government had borrowed money to invest in economic development.
B)Their citizens had borrowed money to finance housing and construction projects.
C)Their government had lent money to Greece and lost it all.
D)Germany stopped giving them financial aid and lent them money instead.

Question 6

Portfolio investments are those:

A)made by a group of investors who pool their money to buy overseas companies.
B)made by the government of one country in assets in another country
C)in which investors own and control assets in another country.
D)in which investors have no role in managing the investment.

Question 7

Which of the following is a reason international finance is controversial?

A)International organizations cannot require restrictions or standards on governments that borrow money.
B)Sovereign states are beholden to foreign investors and international organizations.
C)Lenders in capital-rich countries rarely make sufficient profit on loans,because interest rates are too low.
D)Borrowers in developing countries rarely pay back their loans.

Question 8

How did Intel cause problems in Costa Rica?

A)Their assembly plant caused significant pollution,leading to a spike in cancer diagnoses in the country.
B)Their assembly plant employed such a large proportion of the Costa Rican population that when they closed it,the country experienced a depression.
C)They defaulted on their loans to government banks,leading to a banking crisis.
D)They sold their products in Costa Rica so cheaply that they drove domestic firms out of business.

Question 9

Which of the following is an example of a portfolio investment?

A)A pension fund purchases stock in a Mexican telephone company.
B)The Campbell Soup Company purchases Godiva Chocolates.
C)Hershey's,the candy maker,relocates its factories to Mexico and El Salvador.
D)Walmart purchases a majority of shares of a Thai clothing manufacturer.

Question 10

Which of the following is an example of sovereign lending?

A)Citicorp lending money to the Brazilian government
B)The emperor of Japan lending money to the poor
C)The British Parliament lending money to the British queen
D)The CEO of Citicorp borrowing money from Citicorp

Question 11

What aspect of foreign investment led to President Donald Trump threatening to impose border taxes on multinational corporations?

A)Outsourcing to developing countries
B)Sovereign lending to Eurozone countries
C)Concessional finance from the International Monetary Fund to U.S.corporations
D)Foreign companies building factories in the United States

Question 12

Which of the following has been referred to as being as much a form of aid as of finance?

A)Sovereign lending
B)Concessional finance
C)Foreign direct investment
D)Portfolio investment

Question 13

What event caused the European sovereign debt crisis?

A)The Great Depression
B)The Latin American debt crisis
C)The global financial crisis
D)The Internet bubble bursting

Question 14

Sovereign lending is when:

A)a ruler of a country lends money to his or her subjects.
B)the king or queen of a constitutional monarchy receives loans from parliament.
C)monarchs borrow money from public financial institutions.
D)governments borrow money from private financial institutions.

Question 15

What common interests do lenders and borrowers have?

A)Ensuring that investment dollars go only to socially useful projects
B)Maintaining an equitable interest rate
C)Reducing burdensome regulations
D)Sustaining capital flows

Question 16

As an individual person,you are most likely to engage in international finance through:

A)portfolio investments.
B)direct investments.
C)sovereign lending.
D)concessional finance.

Question 17

Why do developing countries allow foreign direct investment?

A)The World Bank requires it as part of their loan packages.
B)They need capital in order to develop,and FDI is often the best source.
C)They want to break monopolies held by their own domestic firms.
D)Multinational corporations threaten boycotts and trade embargoes if they cannot invest.

Question 18

Which of the following is an example of the clash of interests between borrowers and lenders?

A)The Chilean government demanded that the Anaconda Copper Company share more of its profits with the government,which its shareholders resisted.
B)Mexico borrowed money from the United States during the 1994 Peso Crisis and then paid it back.
C)Because international companies show little interest in the country,Ghana encourages investment in its textile industries through its Ghana Investment Promotion Centre.
D)Since Botswana had little infrastructure when it became independent,the country paid foreign companies to build highways and railroads.

Question 19

Which of the following is an example of foreign direct investment?

A)Ford Motor Company builds an automobile factory in Argentina.
B)Citicorp makes a loan to the queen of England.
C)A Nigerian ship-owner obtains insurance from Lloyd's of London.
D)Grameen Bank provides microloans to small weaving cooperatives in Bangladesh.

Question 20

Which of the following is a reason that international portfolio finance is considered beneficial for less developed countries?

A)Investors in capital-rich countries can provide better management of industries in less developed countries.
B)Investors in capital-rich countries can get higher returns on their money.
C)Capital-scarce countries have access to investment money from wealthier countries.
D)Capital-scarce countries can use these loans to decrease their international debts.

Question 21

What does the International Monetary Fund do in the twenty-first century?

A)It contributes to the smooth regulation of international trade.
B)It provides loans to multinational corporations so that they can operate in developing countries.
C)It lends money to developing countries so that they can build necessary infrastructure.
D)It lends money to developing countries with debt problems.

Question 22

What is the Bank for International Settlements?

A)The official name of the World Bank
B)The branch of the International Monetary Fund that lends money directly to developing countries
C)An international organization created in the 1930s to cooperate on financial matters
D)The international bank that lends money to central banks around the world to make monetary relations less chaotic

Question 23

What is concessional finance?

A)When countries attract multinational corporations by giving them tax breaks for investing in the country
B)When money is lent to developing countries at below-market interest rates
C)When countries allow multinational corporations to violate labor and environmental laws
D)When developing countries encourage multinational corporations to develop their natural resources

Question 24

What is often the effect of austerity measures in a country?

A)An immediate increase in imports by the population
B)A recession or depression
C)A surge in support for the government
D)An increase in overall spending by the population

Question 25

Which of the following is an austerity measure?

A)The United States lowered interest rates in response to the financial crisis.
B)Brazil increased spending on health care for the poor.
C)Mexico raised interest rates to 50 percent in 1994.
D)Venezuela reduced the price of bus fares.

Question 26

Which of the following illustrates how international conditions can affect debtor nations?

A)Mexican oil exports decreased,because higher U.S.interest rates precipitated a recession.
B)The government of Thailand increased interest rates,which led to a recession.
C)Argentina experienced hyperinflation,because of excessive government spending.
D)India increased unemployment assistance because of student protests.

Question 27

What does it mean for a country to default?

A)A government takes ownership of foreign investments in that country.
B)A government fails to make payments on its sovereign debt.
C)A government runs a budget deficit too frequently.
D)A country runs out of foreign reserves.

Question 28

Which of the following is an example of a default?

A)U.S.corporations evaded taxes by locating headquarters in other countries.
B)Kuwait exported more oil than the limited quotas agreed upon by oil-exporting states.
C)The United Kingdom preferred the status quo and kept its own currency instead of adopting the euro.
D)Brazil announced in 1987 that it would not repay its international loans.

Question 29

Which of the following is most likely to be a developing country?

A)A country with little land
B)A country with little unskilled labor
C)A country with lots of skilled labor
D)A country with low amounts of capital

Question 30

Why is borrowing foreign capital controversial in the borrowing countries?

A)International investment often inhibits growth in developing countries.
B)The repayment of loans may require policies that reduce the incomes of those who did not directly benefit from the loans.
C)Taxpayers in borrowing countries have to bail out their own banks.
D)The people who bear the burden of repayment are usually the wealthy industrialists who borrowed the money.

Question 31

What type of international investment is the World Bank involved in?

A)Portfolio investment
B)Foreign direct investment
C)Austerity finance
D)Concessional finance

Question 32

What event sparked the 1980s debt crisis?

A)The Mexican government announced it could not make its debt payment.
B)The Soviet Union invaded Afghanistan,and all extra investment was used for defense spending.
C)The U.S.Congress banned lending to Latin American countries.
D)Ronald Reagan was elected president of the United States.

Question 33

Which of the following is the most prominent international financial institution,especially in times of economic distress?

A)The International Monetary Fund
B)The World Trade Organization
C)The Inter-American Development Bank
D)The Bank for International Settlements

Question 34

The World Bank typically provides additional capital to:

A)developed countries at the market rate.
B)developed countries at below the market rate.
C)lesser developed countries at the market rate.
D)lesser developed countries at below the market rate.

Question 35

The International Monetary Fund was created to:

A)manage the international monetary system.
B)provide loans to developing countries during financial crises.
C)oversee investment in developing countries.
D)provide loan advice to lenders and borrowers.

Question 36

Why is lending capital to foreign countries controversial in the lending countries?

A)Citizens resent banks making a profit on international loans.
B)The profits from the loans are spread widely throughout the economy,which is opposed by the investors.
C)Often when banks make bad loans,their governments bail out the banks with the taxpayers' money.
D)The repayment of the loans requires austerity policies.

Question 37

Why did investors lend little money to developing countries before 1965?

A)In general,there was little available international investment money.
B)Most countries had not repaid their debts during the Great Depression.
C)Investors wanted to lend money only to democracies,and most developing countries were dictatorships.
D)Until 1965,repayment guarantees applied only to loans made to developed countries.

Question 38

Which organization was set up in the 1930s and is composed of the world's principal central banks?

A)United Nations
B)World Bank
C)International Monetary Fund
D)Bank for International Settlements

Question 39

Why is there concessional finance?

A)If poor countries do not offer tax breaks,multinational corporations will build their factories in other countries.
B)If developing countries strictly enforce labor and environmental laws,multinational corporations will move their factories to other countries.
C)The International Monetary Fund has a special relationship with international investors.
D)Poor countries cannot afford regular loans at the market rate,so below-market loans are offered as a form of aid.

Question 40

What is the difference between a recession and a depression?

A)A depression is a short-term decrease in economic growth,while a recession lasts several quarters or even years.
B)Recessions can only occur in developed countries,as lesser developed countries lack the institutions that make recessions possible; depressions can occur in any country.
C)Depressions are long-term downturns in the business cycle leading to a variety of economic problems,while recessions are merely declines in economic growth and activity.
D)Recessions are predictable,while depressions usually do not offer any warning.

Question 41

Why are the 1980s known in Latin America as the "lost decade"?

A)Latin America and other developing regions lost faith in free-trade principles and increased protectionism.
B)Income and investment in Latin America declined dramatically.
C)Taxpayers in Europe lost millions of dollars bailing out banks.
D)Banks in the United States and Europe lost millions of dollars because of bad loans to developing countries.

Question 42

Why is foreign direct investment sometimes controversial in developing countries?

A)People in developing countries prefer that their own multinational corporations invest domestically rather than in richer countries.
B)Multinational corporations lend money to local governments at high interest rates.
C)Developing countries think multinational corporations keep too much of the profit from their investments.
D)Multinational corporations help developing countries develop infrastructure.

Question 43

What is a bilateral investment treaty (BIT)?

A)An agreement reached between a debtor country and the IMF on the conditions of the IMF's loans
B)An agreement between two countries to protect investments from discrimination or expropriation
C)An agreement between two countries on the taxation of multinational corporations
D)An agreement whereby the United States bails out foreign banks for risky investments made in the U.S.economy

Question 44

Critics of this international institution refer to it as an international loan shark,because it lends to countries in their hour of greatest need but also attaches unpopular conditions as a requirement for receiving a loan.

A)World Bank
B)World Trade Organization
C)Bank for International Settlements
D)International Monetary Fund

Question 45

Why did restrictions on immigration increase during the nineteenth and early twentieth centuries in the United States?

A)Immigration was so low that it wasn't controversial until the latter half of the nineteenth century.
B)Unions gained more power over this time period and were better able to influence policy outcomes.
C)A series of economic crises and depressions led to increasing opposition to immigration.
D)The changing racial composition of the typical immigrant led to different levels of opposition over time.

Question 46

Why did the debt crises of the 1980s lead to increased foreign direct investment in developing countries in the 1990s?

A)Banks in developed countries insisted on taking collateral to secure their loans.
B)Developing countries removed restrictions on FDI once their access to foreign loans dried up.
C)Developing countries refused to take out new loans themselves,leading MNCs in their countries to borrow to build new factories.
D)Banks preferred to lend money to MNCs in rich countries rather than to governments in developing countries,and these MNCs then invested in developing countries directly.

Question 47

Which of the following is an example of how the U.S.government responded to the global financial crisis?

A)Enacting tariffs on foreign imports
B)Using billions of dollars to bail out banks
C)Defaulting on debt held by Chinese and Japanese banks
D)Raising taxes to pay off debt

Question 48

Where did the 2008 financial crisis originate?

A)The United States
B)Mexico
C)Japan
D)Greece

Question 49

To which of the following countries did the Asian financial crisis of the 1990s spread?

A)Greece
B)Canada
C)Russia
D)Nigeria

Question 50

Why is there no effective international institution that helps regulate foreign direct investment (FDI)?

A)Multinational corporations have blocked efforts to create a viable international organization.
B)There are few accepted global concerns with regard to FDI,and there is no strong demand for cooperation in dealing with MNCs.
C)An organization is unnecessary,because countries have already agreed to a standard code of conduct regarding FDI.
D)FDI is a recent phenomenon,and there has not been time to develop a relevant international organization.

Question 51

Which of the following groups is most likely to oppose immigration in a developed country?

A)A farmer
B)A low-skilled worker
C)A high-skilled worker
D)A business owner

Question 52

Why was the 1997-98 Asian financial crisis a surprise?

A)The East Asian countries suffering from the crisis had borrowed little international money before the crisis.
B)The East Asian countries suffering from the crisis blamed international investors for their problems.
C)The East Asian countries suffering from the crisis had been considered successful models of development.
D)Creditor countries,like the United States,refused to help out their Asian allies when the crisis occurred.

Question 53

The financial crises of the late 2000s and early 2010s primarily affected what type of country?

A)Autocratic
B)Underdeveloped
C)Autarkic
D)Developed

Question 54

Which of the following is an example of the leverage a host country has with regard to multinational corporations?

A)Union Carbide moved its factory to Sri Lanka when India increased taxes.
B)Toyota factories in the United States import parts from Japan.
C)Ford built an automobile factory in Argentina but did not update its facilities.
D)Chile nationalized international copper companies.

Question 55

How does the Heckscher-Ohlin theory explain why there is international immigration?

A)Countries that recognize the logic of comparative advantage reduce barriers to international migration.
B)Protectionism,which benefits the abundant factor,forces the scarce factor to leave a country in search of greater profits.
C)Differences in factor endowment lead to the export of goods,capital,or people associated with a country's scarce factor.
D)Differences in factor endowment lead to the export of goods,capital,or people associated with a country's abundant factor.

Question 56

Capital and labor are similar in the international political economy because:

A)they are usually concentrated in the same country.
B)both factors typically organize against the liberalization of goods.
C)they are both likely to move toward places that are scarce in their endowment.
D)they both can easily overcome the collective action problems they face domestically due to their small groups.

Question 57

Which of the following examples of migration would be best explained by the Heckscher-Ohlin theory?

A)An unskilled worker from El Salvador moving to the United States
B)A computer engineer from India moving to the United States
C)An unskilled worker from Germany moving to Greece
D)A refugee from civil war in the Middle East moving to Europe

Question 58

The International Monetary Fund is controversial because some believe that:

A)decision making in the organization has been taken over by developing countries.
B)the organization takes unfair advantage of debtor nations.
C)the organization allows only developed countries to become members.
D)the organization faces a massive shortfall in revenue.

Question 59

How did the collapse of the U.S.housing market spark the global financial crisis?

A)U.S.banks defaulted on loans given to them by foreign banks to buy real estate.
B)The U.S.government restricted international investment to focus resources on bailing out home owners.
C)Many mortgages and associated financial instruments would only be good if housing prices kept increasing.
D)Many foreigners had bought housing in the United States during the bubble,and they pulled out all of their money when housing prices dropped.

Question 60

A multinational corporation is created by what type of investment?

A)Portfolio investment
B)Concessional lending
C)Foreign direct investment
D)Sovereign lending

Question 61

If international finance is beneficial,why is it also controversial?

Question 62

How do debtor-creditor interactions attempt to resolve the conflicting interests between these groups?

Question 63

How well does the Heckscher-Ohlin theory explain international immigration?

Question 64

Why do multinational corporations decide to invest abroad rather than relying solely on exporting their products?

Question 65

Who are the relevant actors and what are their interests with regards to sovereign lending and concessional finance?

Question 66

How do international finance and international immigration behave in similar ways? How do they differ?

Question 67

Why is international migration controversial? Who tends to support it and who opposes it?

Question 68

Why have financial and debt crises been recurring features of the global economy?

Question 69

Why is the International Monetary Fund a controversial international financial institution?

Question 70

How did trouble in the U.S.mortgage industry in 2008 lead to a sovereign debt crisis in Europe a few years later? What lessons can we draw from this about globalization and international finance?

Question 71

What was the Latin American debt crisis? How does it illustrate the problems and controversies of sovereign lending?

Question 72

Why is there no international institution that regulates foreign direct investment?

Question 73

How do international financial institutions contribute to global cooperation between investors and borrowers?

Question 74

How does Heckscher-Ohlin explain why banks,corporations,and individuals invest abroad?

Question 75

What leverage over foreign direct investment,if any,does a developing country have over a multinational corporation?