Question 1

What caused a major economic shock in August 2007?

Accepted Answer

A)  U.S. mortgage market 
B)  war in Iraq 
C)  U.S. bond market 
D)  technology stocks 
E)  misreporting from Asian markets 
A)  U.S. mortgage market 
B)  war in Iraq 
C)  U.S. bond market 
D)  technology stocks 
E)  misreporting from Asian markets

Question 2

Many observers believe that the largely unregulated nature of global banking activity leaves the world financial system vulnerable to bank failure on a massive scale. Is this a real threat? If so, what measures have governments taken to reduce it?

Accepted Answer

Yes, this is a real threat. A high level

Question 3

Does the interest rate parity hold in each of the following cases? In case it does not hold, calculate the risk premium.
N. Rt = 8,   = 3, Et = 5,   = 7
O. Rt = 7,   = 4, Et = 6,   = 8
P. Rt = 6,   = 5, Et = 5,   = 7
Q. Rt = 5,   = 4, Et = 6,   = 8
R. Rt = 8,   = 6, Et = 5,   = 7
S. Rt = 7,   = 5, Et = 6,   = 8
T. Rt = 6,   = 4, Et = 5,   = 7
U. Rt = 5,   = 3, Et = 6,   = 8
V. Rt = 8,   = 5, Et = 6,   = 8
W. Rt = 7,   = 3, Et = 8,   = 9
X. Rt = 6,   = 7, Et = 7,   = 8
Y. Rt = 5,   = 6, Et = 5,   = 9
Z. Rt = 4,   = 3, Et = 5,   = 10

Accepted Answer

Question 4

Explain the forecast error, ut+1, in terms of:
(1) Its equation (what it is equal to)
(2) How it is used
(3) Its accuracy

Accepted Answer

(E_t+1 - E_t)/E_t - ( @#IMG-DLM& - E_t)/E_t this equation repr

Question 5

The Basel committee

Accepted Answer

A)  takes advantages of loopholes in multinational banks 
B)  does not support regulatory agencies that monitor the assets of banks' foreign subsidiaries. 
C)  submitted its Concordat in 1975 and was then disbanded. 
D)  continues to be the major forum for cooperation in the regulation of international banking. 
E)  met for the first time in 1975. 
A)  takes advantages of loopholes in multinational banks 
B)  does not support regulatory agencies that monitor the assets of banks' foreign subsidiaries. 
C)  submitted its Concordat in 1975 and was then disbanded. 
D)  continues to be the major forum for cooperation in the regulation of international banking. 
E)  met for the first time in 1975.

Question 6

Which type of main institution in the international capital market most often is involved in foreign exchange intervention?

Accepted Answer

A)  central banks 
B)  non-bank financial institutions 
C)  insurance companies 
D)  corporations 
E)  commercial banks 
A)  central banks 
B)  non-bank financial institutions 
C)  insurance companies 
D)  corporations 
E)  commercial banks

Question 7

In the U.S., banks

Accepted Answer

A)  may not be forced by bank examiner to adjust their balance sheets by writing off loans the examiner thinks will not be repaid. 
B)  may be forced by bank examiner to adjust their balance sheets by writing off loans the examiner thinks will not be repaid. 
C)  may be forced by bank examiner to adjust their balance sheets by writing off loans the examiner thinks will not be repaid only if the Fed and the FDIC examiners agree. 
D)  may be forced by bank examiner to adjust their balance sheets by writing off loans the examiner thinks will not be repaid only if the Fed and the Office of the Comptroller of the Currency examiners agree. 
E)  may be forced by bank examiner to adjust their balance sheets by paying off loans the examiner thinks will not be repaid. 
A)  may not be forced by bank examiner to adjust their balance sheets by writing off loans the examiner thinks will not be repaid. 
B)  may be forced by bank examiner to adjust their balance sheets by writing off loans the examiner thinks will not be repaid. 
C)  may be forced by bank examiner to adjust their balance sheets by writing off loans the examiner thinks will not be repaid only if the Fed and the FDIC examiners agree. 
D)  may be forced by bank examiner to adjust their balance sheets by writing off loans the examiner thinks will not be repaid only if the Fed and the Office of the Comptroller of the Currency examiners agree. 
E)  may be forced by bank examiner to adjust their balance sheets by paying off loans the examiner thinks will not be repaid.

Question 8

Complete the following table.

Accepted Answer

The answer of Complete the following table.  ...

Question 9

Capital markets of poor developing countries that liberalized their financial systems to allow private asset trade with foreigners are called

Accepted Answer

A)  direct foreign markets. 
B)  foreign exchange markets. 
C)  stock & bond markets. 
D)  emerging markets. 
E)  fledgling financial markets. 
A)  direct foreign markets. 
B)  foreign exchange markets. 
C)  stock & bond markets. 
D)  emerging markets. 
E)  fledgling financial markets.

Question 10

Which one of the following possibilities is TRUE?

Accepted Answer

A)  Much of eurocurrency trading occurs in Europe. 
B)  Much of eurocurrency trading occurs in the United States. 
C)  Eurocurrencies trading occurs everywhere except the United States. 
D)  Eurocurrencies trading occurs everywhere except Europe. 
E)  Eurocurrencies trading occurs everywhere except China. 
A)  Much of eurocurrency trading occurs in Europe. 
B)  Much of eurocurrency trading occurs in the United States. 
C)  Eurocurrencies trading occurs everywhere except the United States. 
D)  Eurocurrencies trading occurs everywhere except Europe. 
E)  Eurocurrencies trading occurs everywhere except China.

Question 11

Risk averse people

Accepted Answer

A)  will never hold bonds denominated in several different currencies because of transaction costs. 
B)  will always hold bonds denominated in several different currencies because of transaction costs. 
C)  may hold bonds denominated in several different currencies. 
D)  may hold bonds denominated in several different currencies only if satisfying the well known interest party condition. 
E)  will hold only domestic bonds because of the home bias effect. 
A)  will never hold bonds denominated in several different currencies because of transaction costs. 
B)  will always hold bonds denominated in several different currencies because of transaction costs. 
C)  may hold bonds denominated in several different currencies. 
D)  may hold bonds denominated in several different currencies only if satisfying the well known interest party condition. 
E)  will hold only domestic bonds because of the home bias effect.

Question 12

Large differences in interest rates between countries would indicate that

Accepted Answer

A)  the global market is thriving. 
B)  there is good communication between countries about potential global investment opportunities. 
C)  there are unrealized gains from trade. 
D)  the market is in danger of collapse. 
E)  the supply growth exceeds the aggregate demand. 
A)  the global market is thriving. 
B)  there is good communication between countries about potential global investment opportunities. 
C)  there are unrealized gains from trade. 
D)  the market is in danger of collapse. 
E)  the supply growth exceeds the aggregate demand.

Question 13

Suppose you are offered a gamble in which you win $1,000 half the time but lose $1,000 half the time. If you are risk averter will you take the gamble?

Accepted Answer

Since you are as likely to win as to los

Question 14

Banks in the U.S.

Accepted Answer

A)  face rules against lending too large a fraction of their assets to a single private customer only. 
B)  face rules against lending too large a fraction of their assets to a single private customer or to a single foreign government borrower. 
C)  face rules against lending too large a fraction of their assets to a single foreign government borrower only. 
D)  face rules against lending to too many foreign organizations and corporations. 
E)  face rules against lending to other banks. 
A)  face rules against lending too large a fraction of their assets to a single private customer only. 
B)  face rules against lending too large a fraction of their assets to a single private customer or to a single foreign government borrower. 
C)  face rules against lending too large a fraction of their assets to a single foreign government borrower only. 
D)  face rules against lending to too many foreign organizations and corporations. 
E)  face rules against lending to other banks.

Question 15

The main problem with securitization is that

Accepted Answer

A)  governments are no longer able to repackage bank assets. 
B)  securitized banks grow too large and create oligopolies. 
C)  There is no problem. Governments can still get an accurate picture of global financial flows by simply examining bank balance sheets. 
D)  governments are not able to monitor bank assets or to asses a bank's risk to the soundness of the international banking system. 
E)  the bank assets are not marketable. 
A)  governments are no longer able to repackage bank assets. 
B)  securitized banks grow too large and create oligopolies. 
C)  There is no problem. Governments can still get an accurate picture of global financial flows by simply examining bank balance sheets. 
D)  governments are not able to monitor bank assets or to asses a bank's risk to the soundness of the international banking system. 
E)  the bank assets are not marketable.

Question 16

Define risk aversion and give an example of a risk-averse person?

Accepted Answer

Risk aversion is a characteris

Question 17

What is securitization?

Accepted Answer

The term refers to financial instrument

Question 18

Explain why large interest rate differences would be strong evidence of unrealized gains from trade.

Accepted Answer

The difference between onshore and offsh

Question 19

Intertemporal trade is

Accepted Answer

A)  the exchange of goods but not services for claims to future goods. 
B)  the exchange of services but not goods for claims to future services. 
C)  the exchange of goods and services for claims to future goods and services. 
D)  the exchange of domestic goods and services for foreign goods and services. 
E)  the type of trade that the U.S. government focuses most upon. 
A)  the exchange of goods but not services for claims to future goods. 
B)  the exchange of services but not goods for claims to future services. 
C)  the exchange of goods and services for claims to future goods and services. 
D)  the exchange of domestic goods and services for foreign goods and services. 
E)  the type of trade that the U.S. government focuses most upon.

Question 20

What is the basic motive for asset trade?

Accepted Answer

A)  the belief that large risks will lead to large returns 
B)  restoration of the balance of payments 
C)  portfolio unification 
D)  economic stability 
E)  increase expected returns and reduced risk 
A)  the belief that large risks will lead to large returns 
B)  restoration of the balance of payments 
C)  portfolio unification 
D)  economic stability 
E)  increase expected returns and reduced risk

Exam 20: Financial Globalization: Opportunity and Crisis

What caused a major economic shock in August 2007?

Many observers believe that the largely unregulated nature of global banking activity leaves the world financial system vulnerable to bank failure on a massive scale. Is this a real threat? If so, what measures have governments taken to reduce it?

Explain the forecast error, ut+1, in terms of: (1) Its equation (what it is equal to) (2) How it is used (3) Its accuracy

The Basel committee

Which type of main institution in the international capital market most often is involved in foreign exchange intervention?

In the U.S., banks

Complete the following table.

Capital markets of poor developing countries that liberalized their financial systems to allow private asset trade with foreigners are called

Which one of the following possibilities is TRUE?

Risk averse people

Large differences in interest rates between countries would indicate that

Suppose you are offered a gamble in which you win $1,000 half the time but lose $1,000 half the time. If you are risk averter will you take the gamble?

Banks in the U.S.

The main problem with securitization is that

Define risk aversion and give an example of a risk-averse person?

What is securitization?

Explain why large interest rate differences would be strong evidence of unrealized gains from trade.

Intertemporal trade is

What is the basic motive for asset trade?

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

Filters

Explain the forecast error, u_t+1, in terms of: (1) Its equation (what it is equal to) (2) How it is used (3) Its accuracy