Question 1

Under a debt-for-debt swap, a commercial bank sells its loans at a discount to a developing country government for local currency which it then uses to finance an equity investment in the debtor country.

Accepted Answer

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Question 2

How can a bank reduce its exposure to the debt of developing nations?

Accepted Answer

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Question 3

Why do countries hold international reserves?

Accepted Answer

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Question 4

A debt buyback is a debt-reduction technique in which a government of a debtor nation buys loans from commercial banks at a discount.

Accepted Answer

A debt buyback involves a government buying back its own debt from commercial banks at a discount in order to reduce its overall debt burden.

Question 5

Describe the eurocurrency market.

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Question 6

Concerning international lending risk, country risk refers to the risk that part or all of the interest or principal of a loan will not be repaid.

Accepted Answer

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Question 7

A country with a high debt/export ratio and a high debt service/export ratio would likely be considered as an attractive place in which to invest by foreign residents.

Accepted Answer

A high debt/export ratio and high debt service/export ratio suggest that a country may have difficulty paying off its debts, which could make it a riskier investment for foreign residents.

Question 8

IMF drawings, swap arrangements, buffer stock facility, and compensatory financing for exports are classified as owned reserves rather than borrowed reserves.

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Question 9

A debt-equity swap results in a trade surplus nation forgiving the loans made to a trade-deficit nation.

Accepted Answer

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Question 10

When a deficit nation borrows from the International Monetary Fund, it purchases with its currency the foreign currency required to help finance the payments deficit.

Accepted Answer

When a deficit nation borrows from the International Monetary Fund, it purchases foreign currency with its own currency, which is then used to finance the payments deficit.

Question 11

Concerning international lending risk, currency risk is the risk of asset losses due to changing currency values.

Accepted Answer

Currency risk is a major component of international lending risk, as changes in currency values can greatly impact the value of a loan or investment.

Question 12

Are international reserve needs different for different exchange rate regimes?

Accepted Answer

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Question 13

Concerning international lending risk, credit risk refers to the probability that part or all of the interest rate or principal of a loan will not be repaid.

Accepted Answer

Credit risk is indeed defined as the risk of non-repayment of interest or principal in international lending.

Question 14

Eurocurrencies are deposits, denominated and payable in dollars and other foreign currencies, in banks outside the United States, primarily in London, the market's center.

Accepted Answer

Eurocurrencies are defined as deposits in currencies other than the currency of the country where the bank is located. They are primarily held in banks outside the United States, with London being the major center for trading eurocurrency deposits denominated in dollars and other foreign currencies.

Question 15

The so-called General Arrangements to Borrow provide a permanent increase in the supply of international reserves.

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Question 16

Swap arrangements are bilateral agreements between central banks to allow countries to temporarily borrow funds to ease current-account deficits and discourage speculative capital flows.

Accepted Answer

This statement is true. Swap arrangements allow central banks to lend or borrow funds temporarily to address balance of payments or liquidity needs.

Quiz 17: International Banking: Reserves, Debt, and Risk