Question 1

The International Monetary Fund was created to:

Accepted Answer

The IMF was established to manage the international monetary system, which includes promoting international monetary cooperation, facilitating international trade, promoting exchange rate stability, and providing resources to countries in need of financial assistance. The other options do not fully capture the purpose and role of the IMF.

Question 2

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

Accepted Answer

Using investors' money to pay existing debts or loan interest is not a productive use of foreign investment as it does not generate new economic growth or increase productive capacity. The other options involve using foreign investment to expand industries, improve infrastructure, and create new sources of energy, which are considered productive uses that can benefit the economy.

Question 3

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

Accepted Answer

The International Monetary Fund does not represent individual banks in their negotiations with governments. Its main functions include providing loans to countries experiencing economic crises, certifying compliance with its policies, and providing advice on economic policies.

Question 4

What does the International Monetary Fund do in the twenty-first century?

Accepted Answer

In the twenty-first century, the International Monetary Fund primarily lends money to developing countries with debt problems. This helps these countries to stabilize their economies and avoid financial crises.

Question 5

What event sparked the 1980's debt crisis?

Accepted Answer

The 1980s debt crisis was sparked when the Mexican government announced in 1982 that it could not meet its debt payments, leading to a widespread financial crisis in Latin America.

Question 6

Which organization was set up in the 1930s and is composed of the world's principal central banks?

Accepted Answer

The Bank of International Settlements (BIS) was set up in the 1930s and is made up of the world's principal central banks. Its purpose is to promote international monetary and financial cooperation, as well as acting as a forum for central bank cooperation and coordination.

Question 7

All of the following are international financial institutions EXCEPT the:

Accepted Answer

The World Trade Organization (WTO) is not an international financial institution, but rather an organization that deals with international trade policies and agreements. The other options listed are all international financial institutions.

Question 8

Why is lending capital to foreign countries controversial in the lending countries?

Accepted Answer

When banks make bad loans and suffer losses, their governments often step in to bail them out using taxpayers' money. This can cause controversy and opposition from citizens who may feel that their taxes are being misused. Additionally, lending to foreign countries can also be controversial due to the conditions attached to repayment, such as austerity policies that can lead to economic hardship for citizens of the borrowing countries.

Question 9

Why did investors lend little money to developing countries before 1965?

Accepted Answer

Many countries had defaulted on their debts during the Great Depression, making investors wary of lending to developing countries.

Question 10

Which of the following is the most prominent international financial institution,especially in times of economic distress?

Accepted Answer

The International Monetary Fund (IMF) is the most prominent international financial institution, especially in times of economic distress. The IMF provides loans, technical assistance, and other support to member countries facing economic difficulties, and plays a key role in promoting international monetary cooperation and stability. While other institutions, such as the World Bank and the regional development banks, also play important roles in international finance, the IMF has a unique mandate and set of tools that make it the most prominent institution in times of economic crisis.

Question 11

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

Accepted Answer

Hugo Chavez came to power as the autocratic ruler of Venezuela largely through protests related to International Monetary Fund lending.

Question 12

Why is borrowing foreign capital controversial in the borrowing countries?

Accepted Answer

Borrowing foreign capital often requires implementing policies that affect the general population, such as austerity measures, to repay the loans. This can lead to controversy and opposition from various interest groups.

Question 13

What is often the effect of austerity measures in a country?

Accepted Answer

Austerity measures often involve cutting government spending, reducing social programs, and increasing taxes. These actions can lead to a decrease in consumer spending, lower business investments, and job losses, which can cause a recession or depression in the economy.

Question 14

Which of the following is the most likely to be a developing country?

Accepted Answer

Developing countries typically have low amounts of capital and are in the process of building up their infrastructure and economy. The other options, such as having lots of skilled labor or little land, are not necessarily indicative of a developing country.

Question 15

Which of the following is an example of a default?

Accepted Answer

A default occurs when a borrower fails to repay a loan or debt. Brazil's announcement in 1987 that it would not repay its international loans is an example of a default.

Question 16

The World Bank typically provides additional capital to:

Accepted Answer

The World Bank typically provides additional capital to lesser developed countries at below the market rate. This is because such countries often lack access to affordable financing, and providing loans at below-market rates can help support their economic development.

Question 17

Which of the following is an austerity measure?

Accepted Answer

Austerity measures are policies implemented by governments to reduce spending, increase taxes, or both, in order to reduce deficits and debt. Mexico raising interest rates to 50 percent in 1994 is an example of an austerity measure as it was intended to stabilize the economy and prevent a currency crisis. The other options listed do not fit the definition of an austerity measure.

Question 18

What is the difference between a recession and a depression?

Accepted Answer

The main difference between a recession and a depression is the severity and duration. A depression is a long-term economic downturn that leads to severe problems like high unemployment, bankruptcies, and deflation. In contrast, a recession is a decline in economic growth and activity, typically lasting several quarters or even years, but it is usually less severe than a depression. Therefore, option D best describes the difference between the two terms.

Question 19

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.

Accepted Answer

The International Monetary Fund (IMF) fits the description given, as it is known for attaching strict conditions to loans given to countries experiencing financial difficulties. Some critics have likened these conditions to those of a loan shark, as they can be viewed as exploitative and detrimental to the borrowing country's economic and social stability.

Question 20

Which of the following illustrates how international conditions can affect debtor nations?

Accepted Answer

The decrease in Mexican oil exports was caused by higher U.S. interest rates, which led to a recession in the U.S. and reduced demand for oil. This illustrates how international conditions, such as U.S. economic policies, can affect debtor nations like Mexico that rely on exports for economic growth.

Quiz 9: International Financial Relations