Question : 9.4   Dynamics of Financial Crises in Emerging Market Economies 1) Financial : 1373708

9.4   Dynamics of Financial Crises in Emerging Market Economies

1) Financial crises generally develop along two basic paths:

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.

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

A) negative

B) positive

C) affirming

D) advancing

3) The mismanagement of financial liberalization in emerging market countries can be understood as a severe ________.

A) principal/agent problem

B) asymmetric information problem.

C) lemons problem.

D) free-rider problem.

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

A) fiscal imbalances.

B) decreases in foreign interest rates.

C) a foreign exchange crisis.

D) too strong oversight of the financial industry.

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

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.

6) Severe fiscal imbalances can directly trigger a currency crisis since

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.

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

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

A) higher inflation.

B) lower import prices.

C) lower interest rates.

D) decrease in the value of foreign currency-denominated liabilities.

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

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.

10) Factors that led to worsening conditions in Mexico’s 1994-1995 financial markets include

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.