Question 1

Why is portfolio diversification so important in international trade?

Accepted Answer

Portfolio diversification is important in international trade because parties of the trade are better off by allowing themselves to reduce the risk of the return on their wealth. Traders can divide their wealth among wider amounts of assets in turn reducing the amount of money they have riding on each individual asset.

Question 2

The case where people purposely act in a careless way, for example, driving recklessly because they are insured, is called

Accepted Answer

A)  asymmetric information. 
B)  risk aversion. 
C)  moral hazard. 
D)  bounded rationality. 
E)  thrill-seeking. 
A)  asymmetric information. 
B)  risk aversion. 
C)  moral hazard. 
D)  bounded rationality. 
E)  thrill-seeking. C

Question 3

In the U.S., banks

Accepted Answer

A)  cannot be forced to sell assets that the bank examiner deems too risky. 
B)  can be forced to sell assets that the bank examiner deems too risky. 
C)  can be forced to sell assets that the bank examiner deems too risky only after a court order. 
D)  can be forced to sell assets that the bank examiner deems too risky only after both examiners from the Fed and from the FDIC agree. 
E)  can be forced to trade assets that the bank examiner deems too risky. 
A)  cannot be forced to sell assets that the bank examiner deems too risky. 
B)  can be forced to sell assets that the bank examiner deems too risky. 
C)  can be forced to sell assets that the bank examiner deems too risky only after a court order. 
D)  can be forced to sell assets that the bank examiner deems too risky only after both examiners from the Fed and from the FDIC agree. 
E)  can be forced to trade assets that the bank examiner deems too risky. B

Question 4

Asset trades that deal with equity instruments are best described as

Accepted Answer

A)  share of stock. 
B)  exchange rate. 
C)  bonds. 
D)  bank deposits. 
E)  factors. 
A)  share of stock. 
B)  exchange rate. 
C)  bonds. 
D)  bank deposits. 
E)  factors.

Question 5

Which of the following statements is TRUE for the U.S.?

Accepted Answer

A)  Federally chartered banks are required to make contributions to the FDIC to cover the cost of bank deposits insurance. 
B)  Federally chartered banks are not required to make contributions to the FDIC to cover the cost of bank deposits insurance. 
C)  The States are not required to make contributions to the FDIC to cover the cost of bank deposits insurance for banks with their main branch in that State. 
D)  The States are required to make contributions to the FDIC to cover the cost of bank deposits insurance for banks with their main branch in that State. 
E)  The specific municipality where the main branch of the bank is located is required to make contributions to the FDIC to cover the cost of bank deposits insurance. 
A)  Federally chartered banks are required to make contributions to the FDIC to cover the cost of bank deposits insurance. 
B)  Federally chartered banks are not required to make contributions to the FDIC to cover the cost of bank deposits insurance. 
C)  The States are not required to make contributions to the FDIC to cover the cost of bank deposits insurance for banks with their main branch in that State. 
D)  The States are required to make contributions to the FDIC to cover the cost of bank deposits insurance for banks with their main branch in that State. 
E)  The specific municipality where the main branch of the bank is located is required to make contributions to the FDIC to cover the cost of bank deposits insurance.

Question 6

Which of the following statements is TRUE?

Accepted Answer

A)  Bank failures inflict serious financial harm on individual depositors. 
B)  Bank failures do not inflict serious financial harm on individual depositors. 
C)  Bank failures inflict not only serious financial harm on individual depositors, but also harm the macroeconomic stability of the economy. 
D)  Bank failures inflict serious financial harm on individual depositors, but fortunately do not harm the macroeconomic stability of the economy. 
E)  Bank failures only inflict serious financial harm on the macroeconomic stability of the economy. 
A)  Bank failures inflict serious financial harm on individual depositors. 
B)  Bank failures do not inflict serious financial harm on individual depositors. 
C)  Bank failures inflict not only serious financial harm on individual depositors, but also harm the macroeconomic stability of the economy. 
D)  Bank failures inflict serious financial harm on individual depositors, but fortunately do not harm the macroeconomic stability of the economy. 
E)  Bank failures only inflict serious financial harm on the macroeconomic stability of the economy.

Question 7

Offshore banking can take place at which institution?

Accepted Answer

A)  agency office only 
B)  subsidiary bank only 
C)  foreign bank only 
D)  subsidiary bank and foreign bank 
E)  agency office, subsidiary bank, and foreign branch 
A)  agency office only 
B)  subsidiary bank only 
C)  foreign bank only 
D)  subsidiary bank and foreign bank 
E)  agency office, subsidiary bank, and foreign branch

Question 8

Complete the following table with the formula (P1) * (payoff if state 1) + (P2)* (payoff if state 2), where P1 and P2 are the probabilities of state 1 and 2, respectively.

Accepted Answer

The answer of Complete the following table with the formula...

Question 9

Equity Instruments include

Accepted Answer

A)  stocks. 
B)  bonds. 
C)  banks deposits. 
D)  receipts. 
E)  bank statements. 
A)  stocks. 
B)  bonds. 
C)  banks deposits. 
D)  receipts. 
E)  bank statements.

Question 10

"Bank failure may not be limited to banks that have mismanaged their assets." Explain why?

Accepted Answer

A sound bank faced with the wholesale lo

Question 11

"The internationalization of banking has weakened national safeguards against banking collapse, but at the same time it has made the need for effective safeguards more urgent." Discuss.

Accepted Answer

A) True 
 B)False

Question 12

What are three things to measure for in evaluating the performance of the capital markets?

Accepted Answer

A)  level of intertemporal trade, international trade, portfolio diversification 
B)  level of portfolio diversification, balanced capital accounts, global inflation 
C)  level of portfolio diversification, intertemporal trade, efficiency of foreign exchange 
D)  onshore-offshore interest rate parity, level of portfolio diversification, stability of eurocurrency market 
E)  onshore-offshore interest rate parity, interest parity and foreign exchange, balanced capital accounts 
A)  level of intertemporal trade, international trade, portfolio diversification 
B)  level of portfolio diversification, balanced capital accounts, global inflation 
C)  level of portfolio diversification, intertemporal trade, efficiency of foreign exchange 
D)  onshore-offshore interest rate parity, level of portfolio diversification, stability of eurocurrency market 
E)  onshore-offshore interest rate parity, interest parity and foreign exchange, balanced capital accounts

Question 13

U.S. reserve requirements

Accepted Answer

A)  are rejected by half the banks operating in the United States. 
B)  show how regulatory asymmetries can operate to enhance the profitability of Eurocurrency trading. 
C)  tend to harm the bank's business and decrease monetary aggregates. 
D)  force banks to hold a portion of its assets in a liquid form easily mobilized to meet sudden deposit outflows. 
E)  remain in place, but capital requirements have begun defaulting. 
A)  are rejected by half the banks operating in the United States. 
B)  show how regulatory asymmetries can operate to enhance the profitability of Eurocurrency trading. 
C)  tend to harm the bank's business and decrease monetary aggregates. 
D)  force banks to hold a portion of its assets in a liquid form easily mobilized to meet sudden deposit outflows. 
E)  remain in place, but capital requirements have begun defaulting.

Question 14

People who are risk averse

Accepted Answer

A)  value a collection of assets only on the basis of its expected returns. 
B)  value a collection of assets only on the basis of the risk of that return. 
C)  value a collection of assets not only on the basis of its expected returns but also on the basis of the risk of that return. 
D)  are less likely to invest in life insurance. 
E)  are less likely to have a diverse portfolio. 
A)  value a collection of assets only on the basis of its expected returns. 
B)  value a collection of assets only on the basis of the risk of that return. 
C)  value a collection of assets not only on the basis of its expected returns but also on the basis of the risk of that return. 
D)  are less likely to invest in life insurance. 
E)  are less likely to have a diverse portfolio.

Question 15

Describe the extensive "safety net" that has been set up in the United States in order to reduce the risk of bank failure.

Accepted Answer

(1) Deposit insurance
(2) Rese

Question 16

The leading center of Eurocurrency trading is

Accepted Answer

A)  New York City. 
B)  Chicago. 
C)  London. 
D)  Paris. 
E)  Frankfurt. 
A)  New York City. 
B)  Chicago. 
C)  London. 
D)  Paris. 
E)  Frankfurt.

Question 17

Investment banks in the U.S. are

Accepted Answer

A)  regular banks specializing in investment projects. 
B)  not banks at all but institutions which specialize in underwriting sales of stocks and bonds. 
C)  special arm of the U.S. government for U.S. banks operating outside the U.S. 
D)  regular banks specializing in investment projects, but allowed to offer limited domestic transactions. 
E)  international banks that are heavily invested in the U.S. 
A)  regular banks specializing in investment projects. 
B)  not banks at all but institutions which specialize in underwriting sales of stocks and bonds. 
C)  special arm of the U.S. government for U.S. banks operating outside the U.S. 
D)  regular banks specializing in investment projects, but allowed to offer limited domestic transactions. 
E)  international banks that are heavily invested in the U.S.

Question 18

Imagine that there are two countries, Home and Far Far Away, and that residents of each own only one asset, domestic land yielding an annual harvest of mangoes. Assume that the yield on the land is uncertain. Half the time, Home's land yields a harvest of 5,000 tons of mangoes at the same time as Far Far Away's land yields a harvest of 2,500 tons. The other half of the time the outcomes are reversed. The average for each country mango harvest is

Accepted Answer

A)  2500. 
B)  2750. 
C)  3500. 
D)  3750. 
E)  3000. 
A)  2500. 
B)  2750. 
C)  3500. 
D)  3750. 
E)  3000.

Question 19

What are the three types of transactions between the residents of different countries?

Accepted Answer

The three types are:
(1) Trade

Question 20

In the United States, which of the following safety precautions has the government NOT taken to reduce Bank failures?

Accepted Answer

A)  implemented deposits insurance 
B)  bank reserve requirements 
C)  capital requirements and asset restrictions 
D)  required bank examination 
E)  forcibly closing poorly run banks 
A)  implemented deposits insurance 
B)  bank reserve requirements 
C)  capital requirements and asset restrictions 
D)  required bank examination 
E)  forcibly closing poorly run banks

Exam 20: Financial Globalization: Opportunity and Crisis

Why is portfolio diversification so important in international trade?

The case where people purposely act in a careless way, for example, driving recklessly because they are insured, is called

In the U.S., banks

Asset trades that deal with equity instruments are best described as

Which of the following statements is TRUE for the U.S.?

Which of the following statements is TRUE?

Offshore banking can take place at which institution?

Complete the following table with the formula (P1) * (payoff if state 1) + (P2)* (payoff if state 2), where P1 and P2 are the probabilities of state 1 and 2, respectively.

Equity Instruments include

"Bank failure may not be limited to banks that have mismanaged their assets." Explain why?

"The internationalization of banking has weakened national safeguards against banking collapse, but at the same time it has made the need for effective safeguards more urgent." Discuss.

What are three things to measure for in evaluating the performance of the capital markets?

U.S. reserve requirements

People who are risk averse

Describe the extensive "safety net" that has been set up in the United States in order to reduce the risk of bank failure.

The leading center of Eurocurrency trading is

Investment banks in the U.S. are

What are the three types of transactions between the residents of different countries?

In the United States, which of the following safety precautions has the government NOT taken to reduce Bank failures?

Introduction

World Trade: an Overview

Labor Productivity and Comparative Advantage: the Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: an Asset Approach

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

Fixed Exchange Rates and Foreign Exchange Intervention

International Monetary Systems: an Historical Overview

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

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