Deck 2: World Trade and the International Monetary System

Question 1

Subprime loans are loans that are issued at an interest rate below the prime rate.

Answer 1

False

Question 2

The world's financial markets are becoming increasingly segmented as large international commercial banks achieve more and more economic power.

Answer 2

False

Question 3

Factors contributing to market segmentation include each of the following EXCEPT

A) informational barriers
B) regulatory and institutional interference
C) the immobility of human labor
D) transactions costs
E) All of the above contribute to market segmentation

Answer 3

All of the above contribute to market segmentation

Question 4

Prices in the world's financial markets are becoming increasingly segmented as local political forces work to dismantle many of the world's largest countries, such as those of the former Soviet Union.

Question 5

The "trade balance" of the IMF's Balance-of-Payments Statistics is the net balance (exports minus imports) on merchandise trade.

Question 6

IMF loans to troubled economies are unlikely to change the behaviors of investors, because investors can assess the risks of moral hazard for themselves.

Question 7

The "financial account" of the IMF's Balance-of-Payments Statistics measures the total financial wealth of citizens in each reporting country.

Question 8

In a fixed exchange rate system, governments stand ready to buy and sell currency at official exchange rates.

Question 9

The International Monetary Fund's principal mission is to provide funds for economic development in developing economies.

Question 10

Liquidity refers to the ease with which an asset can be exchanged for another asset of equal value.

Question 11

The international monetary system refers to the global network of governmental and commercial institutions within which currency exchange rates are determined.

Question 12

The Basel Accord established the International Monetary Fund and the World Bank.

Question 13

Special Drawing Rights (SDRs) are distributed to commercial banks within the European Union (EU) in proportion to that member's proportion of EU trade.

Question 14

Markets are integrated when an asset sells for the same price wherever it is traded.

Question 15

The "trade balance" of the IMF's Balance-of-Payments Statistics measures gross exports of goods and services.

Question 16

"The snake" refers to the serpentine path that exchange rates have followed since the introduction of the euro in 2002.

Question 17

Decreases in currency values within a fixed rate system are called devaluations.

Question 18

The ______ of the IMF's Balance-of-Payments Statistics measures whether a particular country is a net importer or exporter of manufactured goods.

A) current account
B) financial account
C) overall balance
D) trade balance
E) None of the above

Question 19

Moral hazard is the risk that the existence of a contract will change the behaviors of parties to the contract.

Question 20

Decreases in currency values within a floating rate system are called devaluations.

Question 21

Which of the following countries is currently participating in the single-currency Eurozone?

A) Denmark
B) Portugal
C) Sweden
D) Switzerland
E) United Kingdom

Question 22

The problem with a fixed exchange rate system is that ______.

A) domestic inflation is directly linked to inflation in other countries
B) fixed exchange rates are hard to maintain when they diverge from market values
C) labor conditions are isolated from the rest of the world
D) Three of the above
E) Two of the above

Question 23

Which of the following was LEAST likely to have caused the Mexican peso crisis of 1995?

A) a shortage of foreign currency reserves at the Mexican central bank
B) a weak economy
C) an inflated value of the peso caused by pegged exchange rates
D) short-term dollar borrowings by Mexican commercial banks and the government
E) All of the above contributed to the crisis

Question 24

Common elements in many currency crises include each of the following EXCEPT

A) a fixed exchange rate system that overvalued the local currency
B) a large amount of foreign currency debt
C) a precipitous drop in the value of the local currency
D) IMF intervention to provide short-term assistance
E) All of the above are common during currency crises

Question 25

The ______ established the World Bank and the International Monetary Fund in 1946.

A) Basel Accord
B) Bretton Woods Agreement
C) Louvre Accord
D) Plaza Accord
E) Treaty of Maastricht

Question 26

Financial aid packages provided by the IMF to countries in a currency crisis are often tied to reforms that include ______.

A) a coup d'état
B) changes in ruling parties
C) financial market liberalizations
D) imposition of military rule to reestablish stability
E) None of the above

Question 27

When fixed exchange rate systems collapse, government officials most frequently blame ______ for precipitating the collapse.

A) currency speculators
B) foreign governments
C) multinational corporations
D) opposition politicians and their policies
E) themselves

Question 28

The ______ of the IMF's Balance-of-Payments Statistics measures the sum of all private financial and economic transactions of the reporting economy with the rest of the world.

A) current account
B) financial account
C) overall balance
D) trade balance
E) None of the above

Question 29

Causes of the global financial crisis of 2008 included each of the following EXCEPT

A) a lack of financial market liquidity
B) a lack of regulatory oversight of mortgage lending
C) lax credit requirements for U.S. homeowners
D) subprime loans of poor credit quality
E) the divergence in economic performance between developed and emerging market economies

Question 30

Which of the following countries was MOST affected by the Asian contagion of 1997?

A) China
B) Korea
C) Japan
D) Singapore
E) Taiwan

Question 31

Which of the following is NOT related to changes in currency values under managed exchange rate systems?

A) business cycles
B) inflation differentials
C) politics
D) the balance of payments
E) Each of the above is related to changes in currency values in managed systems

Question 32

Which of the following currencies is currently linked to the price of gold?

A) British pound
B) Japanese yen
C) U.S. dollar
D) All of the above
E) None of the above

Question 33

One of the first symptoms of the 2008 financial crisis was _______.

A) a decrease in the default risk of collateralized debt obligations (CDOs)
B) currency market volatility
C) a wave of corporate bankruptcies and government bailouts
D) government intervention in the currency markets
E) illiquidity in the market for collateralized debt obligations (CDOs)

Question 34

The ______ of the IMF's Balance-of-Payments Statistics measures whether a particular country is a net importer or exporter of goods and services.

A) current account
B) financial account
C) overall balance
D) trade balance
E) None of the above

Question 35

The ______ of the IMF's Balance-of-Payments Statistics measures cross-border transactions associated with changes in ownership of financial assets and liabilities.

A) current account
B) financial account
C) overall balance
D) trade balance
E) None of the above

Question 36

Critics of IMF lending policies during financial crises FAVOR which of a) through d)?

A) fiscal restraint
B) immediate financial market liberalization
C) monetary restraint
D) temporary IMF loans
E) Critics are against each of these policies

Question 37

Which of the following was LEAST affected by the Asian contagion of 1997?

A) China
B) Korea
C) Indonesia
D) Thailand
E) the International Monetary Fund