Question 1

Explain the causes of the U.S. Savings and Loans crisis of the early 1980s.

Accepted Answer

On the one hand, allowing S&L to make mu

Question 2

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 3

For the following question assume the following facts: (1) Balance of Payments = 0 prior to the transactions.
(2) Person A (who lives in the United States) purchases an airplane from British Airways for $150,000.
(3) Person A pays with a check from his account at First Union Bank in the United States.
(4) British airways, since it will need dollars in 1 month, deposits the check at the Bank of England.
(5) Bank of England deposits the $150,000 at Commonwealth bank, which is located in the United States.
Due to the transactions above, what are the effects on the balance of payments?

Accepted Answer

A)  -$150,000 due to import of good (current account debit) 
B)  +$150,000 due to import of good (current account credit) 
C)  -$150,000 due to deposit of Bank of England (capital account debit) 
D)  +$150,000 due to deposit of Bank of England (capital account credit) 
E)  No effect (150,000 current account debit and 150,000 capital account credit) 
A)  -$150,000 due to import of good (current account debit) 
B)  +$150,000 due to import of good (current account credit) 
C)  -$150,000 due to deposit of Bank of England (capital account debit) 
D)  +$150,000 due to deposit of Bank of England (capital account credit) 
E)  No effect (150,000 current account debit and 150,000 capital account credit)

Question 4

A bank faced with the wholesale loss of deposits is likely to shut down despite fundamentally sound balance sheet. Why could this be?

Accepted Answer

A)  Banks have accountants that are too optimistic. 
B)  Banks purposely lie about their balance sheets in order to attract more clients. 
C)  Many bank assets are illiquid and cannot be sold quickly to meet deposit obligations without substantial loss to the bank. 
D)  Many banks operate on a budget that exceeds their actual reserves, 
E)  Many banks will shut down to preserve their interest profits. 
A)  Banks have accountants that are too optimistic. 
B)  Banks purposely lie about their balance sheets in order to attract more clients. 
C)  Many bank assets are illiquid and cannot be sold quickly to meet deposit obligations without substantial loss to the bank. 
D)  Many banks operate on a budget that exceeds their actual reserves, 
E)  Many banks will shut down to preserve their interest profits.

Question 5

The difference between an agency office located abroad and a subsidiary bank located abroad is:

Accepted Answer

A)  an agency office is just a home bank in another country while a subsidiary bank is controlled by a foreign bank and subject to the same regulations as local banks. 
B)  an agency office is just a home bank in another country while a subsidiary bank arranges loans and transfers funds but does not accept deposits. 
C)  an agency office arranges loans and transfers funds but does not accept deposits while a subsidiary bank is controlled by a foreign bank and subject to the same regulations as local banks. 
D)  an agency office arranges loans and transfers funds but does not accept deposits while a subsidiary bank is just a home bank in a foreign country. 
E)  an agency office is controlled by a foreign bank and subject to the same regulations as local banks while a subsidiary bank arranges loans and transfers funds but does not accept deposits. 
A)  an agency office is just a home bank in another country while a subsidiary bank is controlled by a foreign bank and subject to the same regulations as local banks. 
B)  an agency office is just a home bank in another country while a subsidiary bank arranges loans and transfers funds but does not accept deposits. 
C)  an agency office arranges loans and transfers funds but does not accept deposits while a subsidiary bank is controlled by a foreign bank and subject to the same regulations as local banks. 
D)  an agency office arranges loans and transfers funds but does not accept deposits while a subsidiary bank is just a home bank in a foreign country. 
E)  an agency office is controlled by a foreign bank and subject to the same regulations as local banks while a subsidiary bank arranges loans and transfers funds but does not accept deposits.

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

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 8

If a country chooses to have a monetary policy oriented toward domestic goals and the freedom of international capital movements, then

Accepted Answer

A)  it can have a fixed exchange rate. 
B)  it cannot have a fixed exchange rate. 
C)  it cannot balance its current account. 
D)  it cannot have a fiscal policy oriented toward domestic goals. 
E)  it cannot control money supply growth. 
A)  it can have a fixed exchange rate. 
B)  it cannot have a fixed exchange rate. 
C)  it cannot balance its current account. 
D)  it cannot have a fiscal policy oriented toward domestic goals. 
E)  it cannot control money supply growth.

Question 9

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 10

Asset trades that deal with debt instruments are best described as

Accepted Answer

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

Question 11

Why is it useful to make a distinction between debt and equity instruments?

Accepted Answer

Debt instruments such as bonds and bank

Question 12

Explain the difficulties in regulating international banking.

Accepted Answer

(1) No deposit insurance, in particular,

Question 13

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.

Question 14

The two types of trade, intertemporal and pure asset swap ________ perfect substitutes, because ________.

Accepted Answer

A)  are; they both offer considerable payoff and are equal in the long run 
B)  are; they both involve the smoothing out of now and future consumption 
C)  are not; asset swapping is immediate and involves only assets, while intertemporal trade takes two time periods and involves both assets and goods/services 
D)  could possibly be; different economic states occur at different points in time 
E)  are not; asset swapping never relates to intertemporal trade 
A)  are; they both offer considerable payoff and are equal in the long run 
B)  are; they both involve the smoothing out of now and future consumption 
C)  are not; asset swapping is immediate and involves only assets, while intertemporal trade takes two time periods and involves both assets and goods/services 
D)  could possibly be; different economic states occur at different points in time 
E)  are not; asset swapping never relates to intertemporal trade

Question 15

A random walk model can more accurately predict exchange rates as compared to a sophisticated forecast

Accepted Answer

A)  always. 
B)  for forecasts up to a year away. 
C)  for forecasts longer than a year away. 
D)  never. 
E)  because of the predictability of exchange rates. 
A)  always. 
B)  for forecasts up to a year away. 
C)  for forecasts longer than a year away. 
D)  never. 
E)  because of the predictability of exchange rates.

Question 16

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 invest 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 invest in the U.S.

Question 17

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 18

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 good 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 good 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 19

What is the difference between equity instruments and debt instruments?

Accepted Answer

Equity instruments are share of stocks.

Question 20

The first run on a British bank since 1866 occurred in August 2007 at which bank?

Accepted Answer

A)  Liberty Mutual 
B)  Liberty Rock 
C)  Northern Rock 
D)  Bank of England 
E)  First Savings and Loan 
A)  Liberty Mutual 
B)  Liberty Rock 
C)  Northern Rock 
D)  Bank of England 
E)  First Savings and Loan

Exam 21: Financial Globalization: Opportunity and Crisis

Explain the causes of the U.S. Savings and Loans crisis of the early 1980s.

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

A bank faced with the wholesale loss of deposits is likely to shut down despite fundamentally sound balance sheet. Why could this be?

The difference between an agency office located abroad and a subsidiary bank located abroad is:

Which of the following statements is true?

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

If a country chooses to have a monetary policy oriented toward domestic goals and the freedom of international capital movements, then

Which one of the following possibilities is true?

Asset trades that deal with debt instruments are best described as

Why is it useful to make a distinction between debt and equity instruments?

Explain the difficulties in regulating international banking.

In the U.S., banks

The two types of trade, intertemporal and pure asset swap ________ perfect substitutes, because ________.

A random walk model can more accurately predict exchange rates as compared to a sophisticated forecast

Investment banks in the U.S. are

In the U.S., banks

Intertemporal trade is

What is the difference between equity instruments and debt instruments?

The first run on a British bank since 1866 occurred in August 2007 at which bank?

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 European Experience

Developing Countries: Growth, Crisis, and Reform

Filters

The two types of trade, intertemporal and pure asset swap perfect substitutes, because .