Homework answers / question archive / Arizona State University ECN 306 1)If a company or country with insurance against a certain kind of loss is less careful with regard to that loss than it would normally be because the insurance will pay in the event of a loss, we have an example of:   •             debt overhang

Arizona State University ECN 306 1)If a company or country with insurance against a certain kind of loss is less careful with regard to that loss than it would normally be because the insurance will pay in the event of a loss, we have an example of:   •             debt overhang

Economics

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Arizona State University

ECN 306

1)If a company or country with insurance against a certain kind of loss is less careful with regard to that loss than it would normally be because the insurance will pay in the event of a loss, we have an example of:

 

•             debt overhang.

•             moral hazard.

•             insurance fraud.

•             adverse selection.

 

2. Which of the following resulted in a surge in international lending to developing countries in the mid- 1970s to early 1980s?

 

•             Oil-exporting countries had a low short-run propensity to save out of their extra income.

•             The real interest rates in the industrial countries were significantly high.

•             Lending to developing countries gained momentum through "herding" behavior.

•             The governments of the developing countries encouraged foreign direct investment (FDI) and foreign institutional investments (FII).

 

 

3. The Asian financial crisis of 1997 began in Thailand because:

 

•             the expectation of declining exports led to large declines in stock and real estate prices and put downward pressure on the local currency.

•             countries to which Thailand had loaned money were not able to repay that money, so

Thailand was not able to pay its own debts.

•             the expectation of declining exports increased the value of local currency, making it an unattractive international investment.

•             Thailand tried to borrow money internationally but was not able to find loan terms that were

satisfactory, so it could not pay its debts.

 

 

4. Beginning in about 1990, lending to and investing in developing countries began to increase. One explanation for this is that:

 

•             interest rates in the United States began to rise.

•             deregulation and privatization in the developing countries opened up profitable new investment opportunities.

•             the governments in the developing countries began to encourage import-substituting

manufacturing.

•             there were changes in IMF policies toward exchange rate risk.

 

5. Standard IMF loans to assist a country in addressing its balance of payments problems are called

                because the loans may or may not be used.

•             stand-by arrangements

•             market-rate loans

•             pre-arranged loans

•             concessional-rate loans

 

6. If international financial transactions are prohibited:

 

•             lenders in the richer countries will probably earn high rates of return.

•             borrowers in poorer countries will probably pay low interest rates.

•             exchange rates cannot remain fixed.

•             lenders in the richer countries will probably earn low rates of return.

 

7. The amount of interest and repayment of principal that a borrower must pay during a period of time is called                .

•             debt overhang

•             capital flows

•             debt service

•             debt rescheduling

 

8. Debt restructuring can take two forms:

 

•             debt rescheduling and debt reduction.

•             rescue loans and debt rescheduling.

•             debt rescheduling and debt substitution.

•             debt substitution and debt reduction.

 

9. Hong Kong has a(n):

 

•             exchange rate fixed to the U.S. dollar.

•             flexible exchange rate that is managed relative to the U.S. dollar.

•             exchange rate fixed to a combination of the U.S. dollar, Japanese yen, and British pound.

•             floating exchange rate that is not tied to any other currency.

 

10. Which of the following is the most controversial proposed reform for the "international financial architecture"?

 

•             Developing countries should make increased use of controls on capital inflows.

•             Developing countries should minimize short-term debt.

•             Developing countries should have sound macroeconomic policies.

•             Developing countries should improve the regulation and supervision of their banks.