Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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1.
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Which of the following is not a reason for the development of international
financial markets?
a. | Historical change in exchange rate regimes | b. | Growth in offshore banking and currency trading | c. | Change in ideology | d. | Concern about
openness |
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2.
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Which of the following is an advantage of international financial
markets? 1. Facilitating international
trade
2. Portfolio diversification
3. Promotes an efficient allocation of
resources
4. Disciplining device on policy making a. | None of them. | c. | 2, 3 & 4 | b. | 1, 2 & 3 | d. | All of them. |
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3.
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Which of the following is not a feature of a currency crisis?
a. | Fixed exchange rate | c. | Government runs out of reserves | b. | Overvalued
currency | d. | Weak external
competitiveness |
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4.
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The outcome will always be for both traders to sell in this game:
a. | Low reserve game | b. | Medium reserve game | c. | Medium reserve game
with a Tobin tax | d. | High reserve game |
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5.
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Which of the following is not a condition that makes it likely that a currency
will come under attack in a first generation model?
a. | Incompatible policy objectives | c. | Inflation | b. | Balance of payment
crisis | d. | Government
deficits |
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6.
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Which of the following is not a consequence of a first generation currency
crisis?
a. | Fall in external competitiveness | c. | Fall in
reserves | b. | Fall in inflation | d. | Collapse of the fixed exchange rate |
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7.
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What could set off a self-fulfilling crisis?
a. | Herding | c. | Market manipulation | b. | Bandwagon effect | d. | All of these. |
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8.
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What is the main difference between first and second generation crises?
a. | The first generation models are currency crises, while second generation models are
both currency and financial crises. | b. | A currency crisis brings forward the inevitable
in the first generation model due to weak fundamentals. A second generation crisis may or may
not happen. | c. | They both share weak fundamentals, so a currency crisis is inevitable for both types
of models. | d. | The first generation models are found in developing countries, while second
generation models affect developed countries. |
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9.
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Under what conditions might the rise in interest
rates required to defend the currency be intolerable?
a. | Unemployment | c. | All of these. | b. | Public debt | d. | None of these. |
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10.
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Which is not part of the anatomy of a crisis?
a. | A reason as to why the government may wish to abandon
the fixed exchange rate. | b. | A reason as to why
the government would wish to defend the exchange rate; so there is a degree of conflict between its
objectives. | c. | The cost of defending a currency must increase
when there are significant traders in international financial markets. | d. | The cost of defending a currency must increase when people expect that the
rate might be abandoned. |
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