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

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Question 1

True/False

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Concerning international lending risk,country risk refers to the risk that part or all of the interest or principal of a loan will not be repaid.

A) True
B) False

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Question 2

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In the market for British Pounds the demand is represented by D₀ and supply by S₀.If the exchange rate is flexible and the demand for pounds increases to D1,US monetary authorities will need to

A) supply 8 million pounds to the market
B) supply 4 million pounds to the market
C) supply 2 million pounds to the market
D) do nothing

E) C) and D)
F) A) and B)

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Question 3

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There exists a direct relationship between the degree of exchange rate flexibility and the need for international reserves.

A dollar shortage would indicate that the dollar is:

Which of the following is not considered a "borrowed" reserve?

Swap arrangements are bilateral agreements between central banks to allow countries to temporarily borrow funds to ease current-account deficits and discourage speculative capital flows.

Which indicator of international debt burden schedules interest and principal payments on long-term debt as a percent of export earnings?

Are international reserve needs different for different exchange rate regimes?

Created by the International Monetary Fund,special drawing rights (SDRs)are unconditional rights to draw currencies of other nations,thus enabling countries to finance their current-account deficits.

When exchange rates are fixed by central bankers,the need for international reserves disappears.

"Owned" international reserves consist of:

Most analysts feel that the financial difficulties in East Asia were triggered by

When granting loans to financially troubled nations,the International Monetary Fund requires some degree of conditionality,meaning that the borrowing nation must agree to implement economic policies as mandated by the IMF.

Because the value of the SDR is tied directly to the value of the U.S.dollar,a 10 percent dollar depreciation would result in a 10 percent decrease in the SDR's value.

Bilateral agreements between central banks,which provide for an exchange of currencies to help finance temporary balance-of-payments disequilibriums,are referred to as:

The demand for international reserves tend to increase with the level of world income and trade activity.

For developing countries such as Mexico and Brazil,severe economic problems in the 1980s were caused by:

A debt-equity swap results in a trade surplus nation forgiving the loans made to a trade-deficit nation.

Which organization is largely intended to make long-term reconstruction loans to developing nations?

The International Monetary Fund has sometimes demanded that financially-troubled nations,that borrow from the IMF,undergo austerity programs including slashing of public spending and private consumption.