Deck 7: Financial Crise

Question 1

Regulatory capture refers to:

A) the purchase of securities under false pretense
B) the illicit wiping out of debt
C) the favoring of private interests by government officials
D) the control of the bureaucracy by a private cartel

Answer 1

C

Question 2

Moral hazard occurs when:

A) private actors fail to separate personal and private interest
B) officials receive gifts, affecting their judgement
C) officials decide on high risk courses of action
D) the promise of a bail out encourages excessive risk taking

Answer 2

D

Question 3

The theorists most likely to attribute the 1980s debt crisis to the behavior of lenders are

A) neomercantilists.
B) historical materialists.
C) neoliberals.
D) orthodox liberals.

Answer 3

B

Question 4

In the early 1980s most Latin American states, in comparison to East Asian counterparts

A) had higher debt service ratios.
B) had lower debt service ratios.
C) had similar debt service ratios
D) it depended upon the country

Question 5

Structural Adjustment Loans are related to which international organizations (Select all that apply)

A) UN
B) World Bank
C) BIS
D) IMF

Question 6

The most informal group of creditor governments in terms of legal status, written rules, and membership is the

A) London Club.
B) Group of 20.
C) Group of 7.
D) Paris Club.

Question 7

The primary members of the London Club related to debt restructuring are:

A) the smallest creditor banks.
B) the largest creditor banks.
C) the smallest creditor states.
D) the largest creditor states.

Question 8

The imminent default principle refers to the idea that:

A) states should be allowed to declare bankruptcy when necessary
B) debt rescheduling should be limited to states with a serious and justifiable need
C) creditors need to bear some of the costs of default
D) debts can never be erased, only eased

Question 9

The burden sharing principle refers to:

A) the need for all creditor states to share debt relief costs
B) the need for all debtor states to share debt relief costs
C) the need for a shared burden across both creditor and debtor states
D) the need for creditor states and banks to share debt relief costs

Question 10

A difference between the Baker and Brady Plans was that

A) the Brady Plan focused on low-income LDCs.
B) the Brady Plan provided some debt reduction.
C) the Baker Plan handled debt on a case-by-case basis.
D) the Brady Plan was more willing to extend the debt repayment period.

Question 11

The HIPC Initiative was aimed at which group of countries

A) Latin American
B) highest debt burden LDCs
C) any developing country
D) the poorest LDCs

Question 12

The most important factors contributing to the 1990s Asian financial crisis included

A) governments with high debt service ratios.
B) volatile exchange rates
C) poor macroeconomic fundamentals.
D) debts of private companies and domestic banks.

Question 13

Financial contagion refers to:

A) the spread of one bad economic indicator to another
B) the transmission of economic crises across countries
C) the weakness of developing country financial institutions
D) capital flight increasing over time

Question 14

For years U.S. commercial banks were insulated from the risky activities of investment banks mainly because of the

A) Securities and Exchange Commission.
B) Gramm-Leach-Bliley Act.
C) Glass-Steagall Act.
D) Dodd-Frank Act.

Question 15

A major difference between the 1980s foreign debt crisis and the European debt crisis is:

A) Banks were seriously affected in the 1980s crisis, but they were less affected in the European crisis.
B) Sovereign debt was more of a cause of the 1980s crisis than it was of the European crisis.
C) Creditors first viewed the 1980s crisis as only a liquidity crisis.
D) The 1980s crisis led to more shifts in power and influence than the European crisis.

Question 16

Market failure refers to major stock market crashes.

Question 17

Too Big To Fail refers to ongoing sovereign debt renegotiations.

Question 18

Yugoslavia was an original member of the IMF.

Question 19

The foreign debt crisis resulted in considerable overlap in the functions of the IMF and World Bank.

Question 20

Institutional and orthodox liberals were more concerned than other theorists with revamping the international financial architecture to deal with the 1990s Asian financial crisis.

Question 21

The Securities and Exchange Commission insures the activities of U.S. commercial banks.

Question 22

Collateralized debt obligations are bank-created securities that pool together various types of debt, and then sell shares of that pool to investors.

Question 23

The catalyst for the 2008 recession was a collapse in the U.S. housing market.

Question 24

The catalyst for the European debt crisis in the early 2000s was a number of bank failures.

Question 25

_________ capture refers to when regulators share belief systems with bankers.

Question 26

The______________ measures the ratio of a country's interest and principal payments on its debt to its export income.

Question 27

The______________ are informal groups in which the largest private creditor banks engage in debt rescheduling negotiations with individual LDC debtor countries.

Question 28

The transmission of a financial shock from one market or country to other independent markets or countries indicates there is ___________________.

Question 29

___________ link the opening of capital accounts in East Asia to the crisis there in 1998.

Question 30

_____________________ is the using of borrowed money to make larger investments.

Question 31

The _________________ tax proposal suggested creating taxes on spot currency conversions, to reduce speculative capital flows.

Question 32

Reinhart and Rogoff conclude from their history of financial crises that there is a failure to learn from past crises. Take a look at 2-3 of the crises covered in this chapter, beginning with the 1980s crisis. Do the results hold up their thesis? What do your findings suggest about how to improve learning?

Question 33

What are the competing theoretical views regarding the origins of the 1980s foreign debt crisis? Evaluate them.

Question 34

What are the three main principles that guide the Paris Club regarding debt renegotiation? Evaluate these from the perspective of a developing country debtor seeking to renegotiate its debt, such as Argentina. Are they sound and reasonable?

Question 35

How have the roles of the IMF and the World Bank, and the relationship between them, changed as a result of the foreign debt and financial crises?

Question 36

What are the competing theoretical views regarding the causes of the 1990s Asian financial crisis? How did the 1990s Asian financial crisis differ from the 1980s foreign debt crisis?

Question 37

How did orthodox liberals, interventionist liberals, and historical structuralists propose to reform the international financial architecture after the 1990s Asian financial crisis? Which perspective is most convincing to you and why?

Question 38

Examine 2-3 of the reported causes of the 2008 global financial crisis. For example, what role did changes in financial regulation play vs. innovation of financial instruments? How were they inter-linked?

Question 39

What was the Glass-Steagall Act and what is its current status? What is your evaluation of the idea that investment and retail banking should be kept separate?

Question 40

What are the similarities and differences between the 1980s foreign debt crisis and the European sovereign debt crisis?

Question 41

What is your evaluation of the fragility of the Chinese financial system? Take a few indicators such as interest rates, or levels of debt, and examine how they compare to other countries.

Question 42

What is your opinion of the austerity vs. stimulus debate? Put yourself in the 2008 crisis and explain your advice on which path to take.