Deck 13: Foreign Debt and Financial Crises

Question 1

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
External transfer problem,internal transfer problem

Answer 1

Answer will vary

Question 2

The debt crisis of the 1980s saw a return to this problem that had been common in the nineteenth century:

A) a military action against a neighboring country to stimulate the economy.
B) sovereign defaults.
C) leftist revolutions throughout the developing world.
D) the return to Corn Laws.

Answer 2

B

Question 3

Although the debt crisis effectively ended in the early 1990s for most middle-income countries that had borrowed heavily from commercial banks,it continued for many low-income countries,especially those in:

A) the Middle East.
B) East Asia.
C) Latin America.
D) Africa.

Answer 3

D

Question 4

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Insolvent borrower,illiquid borrower

Question 5

From a national perspective,borrowing permits a country to invest more than it can save and:

A) import more than it can export.
B) engage in the pattern of "infant industry" development.
C) export more than it imports.
D) acquire more prestige in international bond markets.

Question 6

The economic impact of debt flows is magnified by their effect on all of the following EXCEPT:

A) macroeconomic stability.
B) the exchange rate.
C) World Bank transparency.
D) government budgets.

Question 7

From 1980-1982,private creditors provided more than $50 billion a year in new lending to developing countries; by 1987,the net resource flow was:

A) $1 billion.
B) $559 million.
C) $125 million.
D) practically zero.

Question 8

Foreign borrowing is consistent with development when:

A) the additional investment and imports are put to productive use.
B) it increases total imports.
C) it increases total savings.
D) a country can afford the debt service payments.

Question 9

Common characteristics of countries caught in the Asian crises include which of the following?

A) middle and upper-middle national incomes
B) receipt of large flows of private international capital
C) large government budget deficits
D) all of the above

Question 10

The first step for a country to receive debt reduction in the HIPC initiative is to:

A) write a poverty reduction strategy paper.
B) establish a track record of good economic policies.
C) carry out specific policies for three years.
D) double its growth rate.

Question 11

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Liquidity,solvency

Question 12

Individual creditor governments provide debt rescheduling and debt reduction through an informal group called the:

A) G-7.
B) United Nations.
C) Paris Club.
D) Club of Rome.

Question 13

Fixed exchange rates create problems because they:

A) tend to encourage short-term capital inflows.
B) tend to be undervalued.
C) create instability among investors.
D) all of the above.

Question 14

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Stabilization,structural adjustment

Question 15

At the simple level,a country's debt sustainability depends on:

A) its foreign exchange rate and openness to trade.
B) how much it owes and its capacity to make the required payments.
C) potential for facing adverse weather conditions.
D) willingness to devaluate its currency.

Question 16

The argument for providing debt relief for the poorest countries relies on the idea:

A) of debt overhang.
B) that creditor governments and institutions are to blame.
C) that much was lent to poorly governed regimes.
D) all of the above.

Question 17

Assume that,as was the case in 1994,Mexican goods are 22 percent more expensive than U.S.goods.If capital markets are fully liberalized and the Central Bank of Mexico is committed to a pegged peso/dollar exchange rate,then:

A) foreign investors are likely to perceive this as an overvaluation of the peso.
B) there is likely to be a net outflow of short-term capital.
C) the central bank likely will need to raise interest rates.
D) all of the above.

Question 18

The amount due for principal and interest payments in a given year is known as:

A) total revenue.
B) economic profit.
C) debt service.
D) redundancy.

Question 19

Which of the following is NOT used as a debt sustainability indicator?

A) NPV/GDP
B) debt/exports
C) short-term foreign debt/foreign exchange reserves
D) number of illiquid borrowers

Question 20

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Short-term loans,lender exposure

Question 21

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Brady plan,Brady bonds

Question 22

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Moral hazard,standstill

Question 23

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Odious debt,Spanish-American War

Question 24

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Default,debt restructuring

Question 25

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Debt overhang,heavily indebted poor countries (HIPC)

Question 26

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Decision point,completion point

Question 27

IDs and Paired-Concept Questions
These terms can be used individually as short-answer identification questions, or they can be used in pairs. In the latter case, ask students to explain (1) the meaning and significance of each of the two terms and (2) the relationship between them.
Rational panics,bank runs