Deck 9: International Financial Relations

Question 1

Which of the following is NOT a reason that international finance is considered beneficial?

A)Borrowers of money can get reasonable loans with which they can invest and develop.
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.
E)International finance allows money to flow to the areas where it can have the most impact.

Answer 1

D

Question 2

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

A)A pension fund purchases the Mexican telephone company.
B)Campbell's soup company purchases Godiva Chocolates.
C)Hershey's,the candy maker,relocates its factories to Mexico and El Salvador.
D)Wal-Mart purchases a majority of shares of a Thai clothing manufacturer.
E)A U.S.bank makes a loan to a Mexican shoe manufacturer.

Answer 2

E

Question 3

Why is there concessional finance?

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

Answer 3

E

Question 4

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.
E)When lenders get special consideration from the International Monetary Fund during debt crises.

Question 5

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)Multinational corporation activity.
D)Foreign direct investment.
E)Portfolio investment.

Question 6

Portfolio investments are those:

A)made by a group of investors who pool their money to buy overseas companies.
B)in a range of industries.
C)in a diverse number of other countries.
D)in which investors own and control assets in another country.
E)in which investors have no role in managing the investment.

Question 7

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.
E)Maintaining rigorous standards of credit-worthiness.

Question 8

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

A)The Ford Corporation builds an automobile factory in Argentina.
B)Citicorp makes a loan to the queen of England.
C)A Nigerian shipowner obtains insurance from Lloyd's of London.
D)Bank of America buys a few shares of stock in Telefónica,the Spanish telephone company.
E)The Grameen Bank provides microloans to small weaving cooperatives in Bangladesh.

Question 9

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

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

Question 10

Why is international finance controversial?

A)Investors demand near-perfect credit ratings from foreign countries,a requirement that few can meet.
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.
E)International organizations cannot require restrictions or standards on governments that borrow money.

Question 11

Why are there conflicts of interest involved in international finance?

A)Borrowing countries frequently refuse to pay their debts.
B)Lenders resent the constraints placed on them by the International Monetary Fund.
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.
E)A flood of international capital reduces the domestic savings rate.

Question 12

At the end of the financial crisis of 2008,which region was facing new pressures from mounting debt at a level unparalleled since the 1930s?

A)North America.
B)South America.
C)Europe.
D)Africa.
E)Southeast Asia.

Question 13

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)Ford built factories in Brazil in the 1950s and 1960s,contributing to the "Brazilian Miracle" of growth in the late 1960s.
E)Since Botswana had little infrastructure when it became independent,the country paid foreign companies to build highways and railroads.

Question 14

Which of the following is an example of sovereign lending?

A)The Mexican oil company ceding control of the oil-rich Tehuantepec Basin in exchange for a loan from British Petroleum.
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.
E)Citicorp lending money to the Brazilian government.

Question 15

What explains the level of investment in developing countries?

A)There are more opportunities to make profits in developing countries.
B)There is a higher risk to investing in developing countries.
C)Developing countries are farther away from the countries where investors live.
D)Developing countries are close enough to the United States and Europe that investors can keep track of their assets.
E)The large numbers of different languages spoken in developed countries make investment difficult.

Question 16

What is debt forgiveness?

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

Question 17

Which of the following is NOT a reason that investors feel comfortable sending capital to other countries?

A)They can earn higher interest rates that help alleviate the risk of the investment.
B)Countries that do not repay loans can have their foreign assets frozen.
C)The investors' government could put pressure on a borrowing country not to default.
D)The International Monetary Fund (IMF)can force other countries to repay their debts.
E)Owners of capital in capital-rich countries can make more money investing in capital-poor countries.

Question 18

All of the following are examples of international finance EXCEPT:

A)a California home buyer gets a loan from a Dutch bank.
B)a Canadian pension fund lends money for a new company in India.
C)a Thai jeweler sells gems to a jewelry shop in France.
D)an Egyptian store owner borrows money from a Japanese bank.
E)the International Monetary Fund (IMF)lends money to Russia.

Question 19

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)A loan made directly to a foreign ruler.
D)An investment in which a company maintains control of its assets in another country.
E)Investments in other countries in which investors have no role in managing the assets.

Question 20

Sovereign lending is when:

A)a country gives up control of a resource-rich territory in exchange for a loan.
B)a ruler of a country lends money to his or her subjects.
C)the king or queen of a constitutional monarchy receives loans from parliament.
D)monarchs borrow money from public financial institutions.
E)governments borrow money from private financial institutions.

Question 21

The International Monetary Fund was created to:

A)avoid the dramatic decrease in trade that occurred during the Great Depression.
B)provide loans to developing countries during financial crises.
C)oversee investment in developing countries.
D)provide loan advice to lenders and borrowers.
E)manage the international monetary system.

Question 22

Which of the following is NOT a productive use for foreign investment?

A)Chile inviting international copper companies to expand their copper mines.
B)Iraq allowing U.S.oil companies to build an oil rig.
C)Botswana using a loan to build a new highway.
D)India using investors' money to pay loan interest.
E)China using investors' money to build a hydroelectric plant.

Question 23

Which of the following is NOT an example of what the International Monetary Fund does?

A)It certified that Mexico complied with its norms.
B)It forced the Indonesian government to close banks.
C)It represented Citicorp and Bank of America when Argentina suspended its loan repayment.
D)It provided a loan to Thailand during its 1997 economic crisis.
E)It recommended that Ivory Coast reduce its education spending.

Question 24

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 negotiates between multinational corporations and developing countries to facilitate relocation of factories and other businesses.
E)It lends money to developing countries with debt problems.

Question 25

What event sparked the 1980's 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 United States Congress banned lending to Latin American countries.
D)Ronald Reagan was elected president of the United States.
E)The 1979 Iranian revolution led to extreme oil shortages.

Question 26

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)World Trade Organization.
D)International Monetary Fund.
E)Bank of International Settlements.

Question 27

All of the following are international financial institutions EXCEPT the:

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

Question 28

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.
E)Lending to foreign countries is controversial in the borrowing countries but never in the lending countries.

Question 29

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.
E)There were no international financial institutions until 1965.

Question 30

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 Bank.
C)The World Trade Organization.
D)The Inter-American Development Bank.
E)The Bank for International Settlements.

Question 31

Hugo Chavez came to power as the autocratic ruler of which country,largely through protests related to International Monetary Fund lending?

A)Mexico.
B)Venezuela.
C)Argentina.
D)Costa Rica.
E)Cuba.

Question 32

Why is borrowing foreign capital controversial in the borrowing countries?

A)When investment levels are high,interest groups fight over how the money should be divided and spent.
B)The repayment of loans requires 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 the wealthy industrialists who borrowed the money.
E)International investment inhibits growth in developing countries.

Question 33

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.
E)An increase in international investment.

Question 34

Which of the following is the 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 high amounts of capital.
E)A country with low amounts of capital.

Question 35

Which of the following is an example of a default?

A)United States 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)Chile took over the assets of copper companies operating in northern Chile.
D)The United Kingdom preferred the status quo and kept its own currency instead of adopting the euro.
E)Brazil announced in 1987 that it would not repay its international loans.

Question 36

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.
E)countries that are facing monetary problems.

Question 37

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.
E)Russia lowered taxes on the middle class.

Question 38

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)A depression and a recession are functionally equivalent and are interchangeable terms.
C)Recessions can only occur in developed countries,as lesser developed countries lack the institutions that make recessions possible;depressions can occur in any country.
D)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.
E)Recessions are predictable,while depressions usually do not offer any warning.

Question 39

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.
E)United Nations.

Question 40

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)Honduran electricity production decreased,because of insufficient rain to fill its reservoirs.
E)India increased unemployment assistance because of student protests.

Question 41

Why was the 1997-1998 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)The International Monetary Fund stepped in to assist the East Asian countries affected by the crisis.
E)Creditor countries,like the United States,refused to help out their Asian allies when the crisis occurred.

Question 42

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

A)Autocratic.
B)Underdeveloped.
C)African.
D)Autarkic.
E)Developed.

Question 43

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)a country that stops paying its debt will eventually receive more economic benefits than one that honors its obligations.
E)the organization faces a massive shortfall in revenue.

Question 44

How do the current roles of the International Monetary Fund (IMF)and the World Bank differ?

Question 45

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)The United States overthrew the Guatemalan president to safeguard United Fruit's assets.
D)Chile nationalized international copper companies.
E)Ford built an automobile factory in Argentina but did not update its facilities.

Question 46

Which of the following did NOT suffer from a major financial crisis in the 1990s?

A)Brazil.
B)Canada.
C)Russia.
D)Mexico.
E)Indonesia.

Question 47

Explain how the International Monetary Fund contributes to a stable international financial system.

Question 48

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

A)Countries who 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 between industry sectors determine whether labor would remain in a country or immigrate to another country.
D)Differences in factor endowment lead to the export of goods or capital associated with a country's scarce factor.
E)Differences in factor endowment lead to the export of goods or capital associated with a country's abundant factor.

Question 49

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

A)An organization is unnecessary,because the International Monetary Fund and World Trade Organization can fill the gap and help regulate FDI.
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.
E)Multinational corporations have blocked efforts to create a viable international organization.

Question 50

Which of the following is NOT a reason that foreign direct investment is controversial?

A)Multinational corporations can be insensitive to local culture and customs.
B)People in developed countries prefer that multinational corporations invest in their own countries.
C)Multinational corporations can choose to build factories in countries with weak environmental protections.
D)Developing countries think multinational corporations keep too much of the profit from their investments.
E)Multinational corporations help developing countries develop infrastructure.

Question 51

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

Question 52

If international finance is beneficial,why is it controversial?

Question 53

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

Question 54

Where did the 2008 financial crisis originate?

A)The United States.
B)Mexico.
C)Russia.
D)Japan.
E)Indonesia.

Question 55

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.
E)Developing countries missed their chance to adopt liberal trade policies.

Question 56

Which of the following is NOT an example of a common view on immigration?

A)Construction workers in Massachusetts credit the influx of Brazilian workers for an increase in their wages.
B)Plumbers in France complain that Polish workers are taking over their jobs.
C)A U.S.senator complains that the children of Mexican immigrants receive free school lunches.
D)The mayor of a California city points out that immigrants from El Salvador pay sales taxes.
E)Owners of a chicken processing plant in Arkansas post help-wanted advertisements in Spanish-language newspapers.

Question 57

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 liberalization of goods.
C)they are typically immobile as factors of production.
D)they both can easily overcome the collective action problems they face domestically due to their small groups.
E)they are both likely to move toward places that are scarce in their endowment.

Question 58

Which of the following statements about international immigration is FALSE?

A)Europeans could easily move and work internationally with few barriers before 1914.
B)In the nineteenth century,the international migration of Asians was much more restricted than the movement of Europeans.
C)The percentage of foreign-born residents in the United States is significantly higher than that in other developed countries.
D)The level of labor migration was much higher in the nineteenth century than it is today.
E)The level of labor organization affected the level of immigration restrictions in the nineteenth and twentieth centuries.

Question 59

Which of the following is NOT an example of a reason for corporations to set up facilities in other countries?

A)Toyota built factories in the United States to get around American quotas on imported cars.
B)Coca-Cola established a subsidiary in Brazil so that it could develop soft drinks suitable for Brazilian tastes.
C)Volkswagen built a factory in Mexico,because Mexico's labor is more expensive than in Germany.
D)Royal Dutch Shell pumps oil in Nigeria,because it has developed the necessary technology and needs new sources of petroleum.
E)Nike has its shoes made in Vietnam,because Vietnamese labor is cheaper than U.S.labor.

Question 60

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

Question 61

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

Question 62

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 63

What reasons would a country have for wanting to seek international finance,and how would this differ from the reasons why a country might seek foreign direct investment?

Question 64

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

Question 65

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

Question 66

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

Question 67

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

Question 68

How does incomplete information complicate bargaining over international lending and borrowing?