Exam 17: International Banking: Reserves, Debt, and Risk

The demand for international reserves is negatively related to the level of world prices and income.

Debt reduction

Which of the following is not a condition of the international gold standard? That a nation must:

Concerning international lending risk of commercial banks,____ is closely related to political developments in a borrowing country,especially the government's views concerning international investments and loans.

By the 1990s,the British pound had replaced the U.S.dollar as the world's key currency.

International reserves allow a country to finance disequilibria in its balance-of-payments position.

Figure 17.1 Foreign Exchange Market -Refer to Figure 17.1.Under a fixed exchange rate system,U.S.monetary authorities would have to supply 8 million pounds in exchange for dollars to keep the exchange rate at $3 per pound.

To reduce losses on developing country loans,commercial banks sometimes sell their loans,at a discount,to a developing country government for local currency which is then used to finance purchases of ownership shares in developing country industries.This practice is known as:

Under a debt-for-debt swap,a commercial bank sells its loans at a discount to a developing country government for local currency which it then uses to finance an equity investment in the debtor country.

The exchange of borrowing country debt for an ownership position in the borrowing country is known as:

To reduce their exposure to developing country debt,lending commercial banks have practiced all of the following except:

A nation may experience debt-servicing problems because of

The value of the SDR is tied to a currency basket consisting of the U.S.dollar,German mark,Japanese yen,French franc,and British pound.

Which of the following is not considered an "owned" reserve?

With floating exchange rates,payments imbalances tend to be corrected by market-induced fluctuations in the exchange rate,and the need for exchange-rate stabilization and international reserves disappears.

All of the following are major goals of the International Monetary Fund except:

If a nation with a balance-of-payments deficit is willing and able to initiate quick actions to increase export receipts and decrease import payments,the amount of international reserves needed will be relatively large.

IMF drawings,swap arrangements,buffer stock facility,and compensatory financing for exports are classified as owned reserves rather than borrowed reserves.

In the 1970s,the major industrial countries abandoned the managed-floating exchange rate system and adopted a system of fixed exchange rates tied to the price of gold.

The supply of international reserves consists of owned reserves and borrowed reserves.