Question 1

The mismanagement of financial liberalization in emerging market countries can be understood as a severe

Accepted Answer

A) principal/agent problem. 
B) asymmetric information problem. 
C) lemons problem. 
D) free-rider problem. 
A) principal/agent problem. 
B) asymmetric information problem. 
C) lemons problem. 
D) free-rider problem. A

Question 2

The key factor leading to the financial crises in Mexico and the East Asian countries was

Accepted Answer

A) a deterioration in banks' balance sheets because of increasing loan losses. 
B) severe fiscal imbalances. 
C) a sharp increase in the stock market. 
D) a sharp decline in interest rates. 
A) a deterioration in banks' balance sheets because of increasing loan losses. 
B) severe fiscal imbalances. 
C) a sharp increase in the stock market. 
D) a sharp decline in interest rates. A

Question 3

At the time of the South Korean financial crisis,the government allowed many chaebol owned finance companies to convert to merchant banks. Finance companies ________ allowed to borrow abroad and merchant banks ________.

Accepted Answer

A) were not;could borrow abroad 
B) were not;could not borrow abroad 
C) were;could borrow abroad 
D) were;could not borrow abroad 
A) were not;could borrow abroad 
B) were not;could not borrow abroad 
C) were;could borrow abroad 
D) were;could not borrow abroad A

Question 4

Before the South Korean financial crisis,sales by the top five chaebols (family-owned conglomerates)were

Accepted Answer

A) nearly 50% of GDP. 
B) about 10% of GDP. 
C) almost 90% of GDP. 
D) nearly 25% of GDP. 
A) nearly 50% of GDP. 
B) about 10% of GDP. 
C) almost 90% of GDP. 
D) nearly 25% of GDP.

Question 5

A sharp depreciation of the domestic currency after a currency crisis leads to

Accepted Answer

A) higher inflation. 
B) lower import prices. 
C) lower interest rates. 
D) decrease in the value of foreign currency-denominated liabilities. 
A) higher inflation. 
B) lower import prices. 
C) lower interest rates. 
D) decrease in the value of foreign currency-denominated liabilities.

Question 6

Factors likely to cause a financial crisis in emerging market countries include

Accepted Answer

A) severe fiscal imbalances. 
B) decreases in foreign interest rates. 
C) a foreign exchange crisis. 
D) too strong oversight of the financial industry. 
A) severe fiscal imbalances. 
B) decreases in foreign interest rates. 
C) a foreign exchange crisis. 
D) too strong oversight of the financial industry.

Question 7

Argentina's financial crisis was due to

Accepted Answer

A) poor supervision of the banking system. 
B) a lending boom prior to the crisis. 
C) fiscal imbalances. 
D) lack of expertise in screening and monitoring borrowers at banking institutions. 
A) poor supervision of the banking system. 
B) a lending boom prior to the crisis. 
C) fiscal imbalances. 
D) lack of expertise in screening and monitoring borrowers at banking institutions.

Question 8

In emerging market countries,many firms have debt denominated in foreign currency like the dollar or yen. A depreciation of the domestic currency

Accepted Answer

A) results in increases in the firm's indebtedness in domestic currency terms,even though the value of their assets remains unchanged. 
B) results in an increase in the value of the firm's assets. 
C) means that the firm does not owe as much on their foreign debt. 
D) strengthens their balance sheet in terms of the domestic currency. 
A) results in increases in the firm's indebtedness in domestic currency terms,even though the value of their assets remains unchanged. 
B) results in an increase in the value of the firm's assets. 
C) means that the firm does not owe as much on their foreign debt. 
D) strengthens their balance sheet in terms of the domestic currency.

Question 9

At the time of the South Korean financial crisis,the merchant banks were

Accepted Answer

A) almost virtually unregulated. 
B) subject to heavy government regulation. 
C) engaged in long-term lending to the corporate sector. 
D) restricted to long-term foreign borrowing. 
A) almost virtually unregulated. 
B) subject to heavy government regulation. 
C) engaged in long-term lending to the corporate sector. 
D) restricted to long-term foreign borrowing.

Question 10

The two key factors that trigger speculative attacks on emerging market currencies are

Accepted Answer

A) deterioration in bank balance sheets and severe fiscal imbalances. 
B) deterioration in bank balance sheets and low interest rates abroad. 
C) low interest rates abroad and severe fiscal imbalances. 
D) low interest rates abroad and rising asset prices. 
A) deterioration in bank balance sheets and severe fiscal imbalances. 
B) deterioration in bank balance sheets and low interest rates abroad. 
C) low interest rates abroad and severe fiscal imbalances. 
D) low interest rates abroad and rising asset prices.

Question 11

In emerging market countries,the deterioration in bank's balance sheets has more ________ effects on lending and economic activity than in advanced countries.

Accepted Answer

A) negative 
B) positive 
C) affirming 
D) advancing 
A) negative 
B) positive 
C) affirming 
D) advancing

Question 12

Factors that led to worsening conditions in Mexico's 1994-1995 financial markets include

Accepted Answer

A) failure of the Mexican oil monopoly. 
B) the ratification of the North American Free Trade Agreement. 
C) increased uncertainty from political shocks. 
D) decline in interest rates. 
A) failure of the Mexican oil monopoly. 
B) the ratification of the North American Free Trade Agreement. 
C) increased uncertainty from political shocks. 
D) decline in interest rates.

Question 13

The chaebols encouraged the Korean government to open up Korean financial markets to foreign capital. The Korean government responded by

Accepted Answer

A) allowing unlimited short-term foreign borrowing but maintained quantity restrictions on long-term foreign borrowing by financial institutions. 
B) allowing unlimited short-term and long-term foreign borrowing by financial institutions. 
C) maintaining quantity restrictions on short-term foreign borrowing but allowing unlimited long-term foreign borrowing by financial institutions. 
D) not allowing any foreign borrowing by financial institutions. 
A) allowing unlimited short-term foreign borrowing but maintained quantity restrictions on long-term foreign borrowing by financial institutions. 
B) allowing unlimited short-term and long-term foreign borrowing by financial institutions. 
C) maintaining quantity restrictions on short-term foreign borrowing but allowing unlimited long-term foreign borrowing by financial institutions. 
D) not allowing any foreign borrowing by financial institutions.

Question 14

Financial crises generally develop along two basic paths

Accepted Answer

A) mismanagement of financial liberalization/globalization and severe fiscal imbalances. 
B) stock market declines and severe fiscal imbalances. 
C) mismanagement of financial liberalization/globalization and stock market declines. 
D) stock market declines and unanticipated declines in the value of the domestic currency. 
A) mismanagement of financial liberalization/globalization and severe fiscal imbalances. 
B) stock market declines and severe fiscal imbalances. 
C) mismanagement of financial liberalization/globalization and stock market declines. 
D) stock market declines and unanticipated declines in the value of the domestic currency.

Question 15

What two key factors trigger speculative attacks leading to currency cries in emerging market countries?

Accepted Answer

The deterioration in bank balance sheets

Question 16

The economic hardship resulting from a financial crises is severe,however,there are also social consequences such as

Accepted Answer

A) increased crime. 
B) difficulty getting a loan. 
C) currency devaluations. 
D) loss of output. 
A) increased crime. 
B) difficulty getting a loan. 
C) currency devaluations. 
D) loss of output.

Question 17

A feature of debt markets in emerging-market countries is that debt contracts are typically

Accepted Answer

A) very short term. 
B) long term. 
C) intermediate term. 
D) perpetual. 
A) very short term. 
B) long term. 
C) intermediate term. 
D) perpetual.

Question 18

Severe fiscal imbalances can directly trigger a currency crisis since

Accepted Answer

A) investors fear that the government may not be able to pay back the debt and so begin to sell domestic currency. 
B) the government may stop printing money. 
C) the government may have to cut back on spending. 
D) the currency must surely increase in value. 
A) investors fear that the government may not be able to pay back the debt and so begin to sell domestic currency. 
B) the government may stop printing money. 
C) the government may have to cut back on spending. 
D) the currency must surely increase in value.

Question 19

Factors that led to worsening conditions in Mexico's 1994-1995 financial markets,but did not lead to worsening financial market conditions in East Asia in 1997-1998 include

Accepted Answer

A) rise in interest rates abroad. 
B) bankers' lack of expertise in screening and monitoring borrowers. 
C) deterioration of banks' balance sheets because of increasing loan losses. 
D) stock market decline. 
A) rise in interest rates abroad. 
B) bankers' lack of expertise in screening and monitoring borrowers. 
C) deterioration of banks' balance sheets because of increasing loan losses. 
D) stock market decline.

Question 20

Factors that led to worsening financial market conditions in East Asia in 1997-1998 include

Accepted Answer

A) weak supervision by bank regulators. 
B) a rise in interest rates abroad. 
C) unanticipated increases in the price level. 
D) increased uncertainty from political shocks. 
A) weak supervision by bank regulators. 
B) a rise in interest rates abroad. 
C) unanticipated increases in the price level. 
D) increased uncertainty from political shocks.

Exam 26: Financial Crises in Emerging Market Economies

The mismanagement of financial liberalization in emerging market countries can be understood as a severe

The key factor leading to the financial crises in Mexico and the East Asian countries was

At the time of the South Korean financial crisis,the government allowed many chaebol owned finance companies to convert to merchant banks. Finance companies ________ allowed to borrow abroad and merchant banks ________.

Before the South Korean financial crisis,sales by the top five chaebols (family-owned conglomerates)were

A sharp depreciation of the domestic currency after a currency crisis leads to

Factors likely to cause a financial crisis in emerging market countries include

Argentina's financial crisis was due to

In emerging market countries,many firms have debt denominated in foreign currency like the dollar or yen. A depreciation of the domestic currency

At the time of the South Korean financial crisis,the merchant banks were

The two key factors that trigger speculative attacks on emerging market currencies are

In emerging market countries,the deterioration in bank's balance sheets has more ________ effects on lending and economic activity than in advanced countries.

Factors that led to worsening conditions in Mexico's 1994-1995 financial markets include

The chaebols encouraged the Korean government to open up Korean financial markets to foreign capital. The Korean government responded by

Financial crises generally develop along two basic paths

What two key factors trigger speculative attacks leading to currency cries in emerging market countries?

The economic hardship resulting from a financial crises is severe,however,there are also social consequences such as

A feature of debt markets in emerging-market countries is that debt contracts are typically

Severe fiscal imbalances can directly trigger a currency crisis since

Factors that led to worsening conditions in Mexico's 1994-1995 financial markets,but did not lead to worsening financial market conditions in East Asia in 1997-1998 include

Factors that led to worsening financial market conditions in East Asia in 1997-1998 include

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Central Banks and the Federal Reserve System

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, inflation and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

The ISLM Model

Filters

At the time of the South Korean financial crisis,the government allowed many chaebol owned finance companies to convert to merchant banks. Finance companies allowed to borrow abroad and merchant banks .