Question 1

A country can control

Accepted Answer

A)  its flexible exchange rate. 
B)  monetary policy oriented toward domestic goals. 
C)  international capital movements. 
D)  foreign inflationary policies. 
E)  and avoid risks in international trade. 
A)  its flexible exchange rate. 
B)  monetary policy oriented toward domestic goals. 
C)  international capital movements. 
D)  foreign inflationary policies. 
E)  and avoid risks in international trade.

Question 2

Rising inflationary pressure caused the U.S. to tighten its monetary policy at the end of the 1960s. As a result, market interest rates rose above the Regulation Q ceiling and American banks found it impossible to attract time deposits for re-lending. How did the banks get around this problem?

Accepted Answer

A)  by setting their own interest rates and then using better business as compensation for government regulations 
B)  by borrowing funds from European branches, which faced no restriction on the interest they could pay on Eurodollar deposits 
C)  by pushing through new legislation that nullified Regulation Q. 
D)  by creating subsidiary branches in foreign countries. 
E)  by waiting to trade time deposits until Regulation Q no longer applied. 
A)  by setting their own interest rates and then using better business as compensation for government regulations 
B)  by borrowing funds from European branches, which faced no restriction on the interest they could pay on Eurodollar deposits 
C)  by pushing through new legislation that nullified Regulation Q. 
D)  by creating subsidiary branches in foreign countries. 
E)  by waiting to trade time deposits until Regulation Q no longer applied.

Question 3

"It is in the interest of each depositor to withdraw her money from a bank if all other depositors are doing the same, even when the bank's assets are sound." Discuss. As part of your answer clearly state whether the statement is true or false.

Accepted Answer

A) True 
 B)False

Question 4

In the U.S., the following agencies have the right to examine the bank's books:

Accepted Answer

A)  Fed and the FDIC. 
B)  FDIC and the Office of the Comptroller of the Currency. 
C)  Fed and the Department of Commerce 
D)  FDIC, Fed and the Office of the Comptroller of the Currency. 
E)  Only the Fed. 
A)  Fed and the FDIC. 
B)  FDIC and the Office of the Comptroller of the Currency. 
C)  Fed and the Department of Commerce 
D)  FDIC, Fed and the Office of the Comptroller of the Currency. 
E)  Only the Fed.

Question 5

Discuss studies based on the interest parity conditions.

Accepted Answer

In general, the formula does n

Question 6

Who are the main actors in the international capital market?

Accepted Answer

(1) Commercial banks
(2) Corporations
(3

Question 7

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 8

"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 9

Which of the following statements is true?

Accepted Answer

A)  Bank failure is limited to banks that have mismanaged their assets. 
B)  Bank failure is limited to banks that have invested in real estate. 
C)  Bank failure is limited to banks that have invested in government bonds. 
D)  Bank failure is limited to a few banks. 
E)  Bank failure is NOT limited to banks that have mismanaged their assets. 
A)  Bank failure is limited to banks that have mismanaged their assets. 
B)  Bank failure is limited to banks that have invested in real estate. 
C)  Bank failure is limited to banks that have invested in government bonds. 
D)  Bank failure is limited to a few banks. 
E)  Bank failure is NOT limited to banks that have mismanaged their assets.

Question 10

The idea of risk aversion

Accepted Answer

A)  is at odds with the idea of insurance. 
B)  help explain the profitability of insurance companies. 
C)  has nothing to do with insurance companies. 
D)  help explain the losses suffers by the insurance industry. 
E)  help explain why insurance companies in the long run are zero profit companies. 
A)  is at odds with the idea of insurance. 
B)  help explain the profitability of insurance companies. 
C)  has nothing to do with insurance companies. 
D)  help explain the losses suffers by the insurance industry. 
E)  help explain why insurance companies in the long run are zero profit companies.

Question 11

What is a difficulty encountered in regulating international banking?

Accepted Answer

A)  excessive deposit insurance rates on international banks 
B)  absence of reserve requirements 
C)  oppressive regulatory controls that reduce competitiveness 
D)  lack of funds and incentive to secure payments 
E)  variability in exchange rates 
A)  excessive deposit insurance rates on international banks 
B)  absence of reserve requirements 
C)  oppressive regulatory controls that reduce competitiveness 
D)  lack of funds and incentive to secure payments 
E)  variability in exchange rates

Question 12

Suppose the two countries can trade shares in the ownership of their perspective assets. Further assume that a Home owner of a 25 percent share in Foreign land. He will receive 25 percent share in Foreign land and thus receives 25 percent of the annual Foreign kiwi fruit harvest. Further assume that also that a Foreign owner of a 25 percent share in Home land is permitted. In this case, a Foreigner is entitled to 25 percent of the Home harvest. Calculate the expected value of kiwi fruit for each investor.

Accepted Answer

Good year at Home: 75 + 12.5 =

Question 13

What would best describe the international capital markets?

Accepted Answer

A)  the market of exchange of bonds 
B)  the market of exchange of stocks 
C)  the market of exchange of real-estate 
D)  the market in which residents of different countries trade assets 
E)  the currency market 
A)  the market of exchange of bonds 
B)  the market of exchange of stocks 
C)  the market of exchange of real-estate 
D)  the market in which residents of different countries trade assets 
E)  the currency market

Question 14

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 15

Under a gold standard, countries control

Accepted Answer

A)  its flexible exchange rate. 
B)  monetary policy oriented toward domestic goals. 
C)  international capital movements. 
D)  foreign inflationary policies. 
E)  and avoid risks in international trade. 
A)  its flexible exchange rate. 
B)  monetary policy oriented toward domestic goals. 
C)  international capital movements. 
D)  foreign inflationary policies. 
E)  and avoid risks in international trade.

Question 16

Suppose the two countries can trade shares in the ownership of their perspective assets without any restrictions. Assume that the consumers in both countries would like to totally smooth their consumption. Describe the outcomes.

Accepted Answer

In this case, Home residents will buy a

Question 17

Explain why the FDIC is following a "too-big-to-fail" policy of fully protecting all depositors at the largest banks.

Accepted Answer

A tricky question. The FDIC does that al

Question 18

Suppose you are offered a gamble in which you win $1,000 1/3 half the time but lose $800 2/3 half the time. If you are risk lover will you take the gamble? What will your expected payoff be?

Accepted Answer

The expected payoff would be:
1/3 (+$1,0

Question 19

Why did the Fed step in to organize a rescue for Long Term Capital Management (LTCM) in September, 1998, rather than simply letting the trouble fund fail? Was the Fed's action necessary or advisable?

Accepted Answer

To avoid what the Fed perceived as a pos

Question 20

Describe how the Eurodollar market's early growth was spawned by the Cold War between the United States and the U.S.S.R.

Accepted Answer

During the Cold War, the Soviets feared

Exam 21: Financial Globalization: Opportunity and Crisis

A country can control

Rising inflationary pressure caused the U.S. to tighten its monetary policy at the end of the 1960s. As a result, market interest rates rose above the Regulation Q ceiling and American banks found it impossible to attract time deposits for re-lending. How did the banks get around this problem?

"It is in the interest of each depositor to withdraw her money from a bank if all other depositors are doing the same, even when the bank's assets are sound." Discuss. As part of your answer clearly state whether the statement is true or false.

In the U.S., the following agencies have the right to examine the bank's books:

Discuss studies based on the interest parity conditions.

Who are the main actors in the international capital market?

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?

"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.

Which of the following statements is true?

The idea of risk aversion

What is a difficulty encountered in regulating international banking?

What would best describe the international capital markets?

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

Under a gold standard, countries control

Suppose the two countries can trade shares in the ownership of their perspective assets without any restrictions. Assume that the consumers in both countries would like to totally smooth their consumption. Describe the outcomes.

Explain why the FDIC is following a "too-big-to-fail" policy of fully protecting all depositors at the largest banks.

Suppose you are offered a gamble in which you win $1,000 1/3 half the time but lose $800 2/3 half the time. If you are risk lover will you take the gamble? What will your expected payoff be?

Why did the Fed step in to organize a rescue for Long Term Capital Management (LTCM) in September, 1998, rather than simply letting the trouble fund fail? Was the Fed's action necessary or advisable?

Describe how the Eurodollar market's early growth was spawned by the Cold War between the United States and the U.S.S.R.

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

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