Question 1

Which of the following is not a condition of the international gold standard? That a nation must:

Accepted Answer

A)   Convert gold into paper currency,and vice versa,at a stipulated rate
B)   Permit gold to be freely imported and exported
C)   Tolerate wide fluctuations in its exchange rate
D)   Define its monetary unit in terms of a stipulated amount of goldE) None of the above
F) All of the above

Question 2

The exchange of borrowing country debt for an ownership position in the borrowing country is known as:

Accepted Answer

A)   Debt forgiveness
B)   Debt-for-debt swap
C)   Debt reduction
D)   Debt/equity swapE) All of the above
F) B) and C)

Question 3

With floating exchange rates,payments imbalances tend to be corrected by market-induced fluctuations in the exchange rate,and the need for exchange-rate stabilization and international reserves disappears.

Accepted Answer

A) True 
 B)False

Question 4

The value of the SDR is tied to a currency basket consisting of the U.S.dollar,German mark,Japanese yen,French franc,and British pound.

Accepted Answer

A) True 
 B)False

Question 5

Under a debt-for-debt swap,a commercial bank sells its loans at a discount to a developing country government for local currency which it then uses to finance an equity investment in the debtor country.

Accepted Answer

A) True 
 B)False

Question 6

Concerning international lending risk of commercial banks,____ is closely related to political developments in a borrowing country,especially the government's views concerning international investments and loans.

Accepted Answer

A)   Economic risk
B)   Credit risk
C)   Country risk
D)   Currency riskE) A) and B)
F) A) and C)

Question 7

Debt reduction

Accepted Answer

A)   Refers to any voluntary scheme that lessens the burden on the debtor nation
B)   May be accomplished through debt rescheduling
C)   May be achieved through debt/equity swaps
D)   All of the aboveE) A) and B)
F) None of the above

Question 8

Which of the following is not considered an "owned" reserve?

Accepted Answer

A)   National currencies
B)   Gold
C)   Special drawing rights
D)   Oil facilityE) B) and C)
F) A) and B)

Question 9

All of the following are major goals of the International Monetary Fund except:

Accepted Answer

A)   Promoting international cooperation among member countries
B)   Fostering a multilateral system of international payments
C)   Making long-term development and reconstruction loans
D)   Promoting exchange-rate stability and the elimination of exchange restrictionsE) C) and D)
F) B) and D)

Question 10

In the 1970s,the major industrial countries abandoned the managed-floating exchange rate system and adopted a system of fixed exchange rates tied to the price of gold.

Accepted Answer

A) True 
 B)False

Question 11

International reserves allow a country to finance disequilibria in its balance-of-payments position.

Accepted Answer

A) True 
 B)False

Question 12

Figure 17.1 Foreign Exchange Market 
-Refer to Figure 17.1.Under a fixed exchange rate system,U.S.monetary authorities would have to supply 8 million pounds in exchange for dollars to keep the exchange rate at $3 per pound.

Accepted Answer

A) True 
 B)False

Question 13

To reduce their exposure to developing country debt,lending commercial banks have practiced all of the following except:

Accepted Answer

A)   Making outright loan sales to other commercial banks
B)   Reducing their capital base as a cushion against losses
C)   Dealing in debt-for-debt swaps with foreign governments
D)   Dealing in debt/equity swaps with foreign governmentsE) A) and C)
F) A) and B)

Question 14

A nation may experience debt-servicing problems because of

Accepted Answer

A)   Pursuit of improper macroeconomic policies
B)   Inadequate borrowing
C)   Adverse economic events
D)   Both a and cE) None of the above
F) A) and D)

Question 15

IMF drawings,swap arrangements,buffer stock facility,and compensatory financing for exports are classified as owned reserves rather than borrowed reserves.

Accepted Answer

A) True 
 B)False

Question 16

The supply of international reserves consists of owned reserves and borrowed reserves.

Accepted Answer

A) True 
 B)False

Question 17

The demand for international reserves is negatively related to the level of world prices and income.

Accepted Answer

A) True 
 B)False

Question 18

To reduce losses on developing country loans,commercial banks sometimes sell their loans,at a discount,to a developing country government for local currency which is then used to finance purchases of ownership shares in developing country industries.This practice is known as:

Accepted Answer

A)   Debt forgiveness
B)   Debt buyback
C)   Debt-for-debt swap
D)   Debt/equity swapE) A) and D)
F) A) and B)

Question 19

By the 1990s,the British pound had replaced the U.S.dollar as the world's key currency.

Accepted Answer

A) True 
 B)False

Question 20

If a nation with a balance-of-payments deficit is willing and able to initiate quick actions to increase export receipts and decrease import payments,the amount of international reserves needed will be relatively large.

Accepted Answer

A) True 
 B)False

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

International reserves allow a country to finance disequilibria in its balance-of-payments position.

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The supply of international reserves consists of owned reserves and borrowed reserves.

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With floating exchange rates,payments imbalances tend to be corrected by market-induced fluctuations in the exchange rate,and the need for exchange-rate stabilization and international reserves disappears.

Correct AnswerverifiedShow Answer

A nation may experience debt-servicing problems because of

Correct AnswerverifiedShow Answer

Which of the following is not considered an "owned" reserve?

Correct AnswerverifiedShow Answer

The demand for international reserves is negatively related to the level of world prices and income.

Correct AnswerverifiedShow Answer

If a nation with a balance-of-payments deficit is willing and able to initiate quick actions to increase export receipts and decrease import payments,the amount of international reserves needed will be relatively large.

Correct AnswerverifiedShow Answer

Which of the following is not a condition of the international gold standard? That a nation must:

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Figure 17.1 Foreign Exchange Market -Refer to Figure 17.1.Under a fixed exchange rate system,U.S.monetary authorities would have to supply 8 million pounds in exchange for dollars to keep the exchange rate at $3 per pound.

Correct AnswerverifiedShow Answer

All of the following are major goals of the International Monetary Fund except:

Correct AnswerverifiedShow Answer

Debt reduction

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Under a debt-for-debt swap,a commercial bank sells its loans at a discount to a developing country government for local currency which it then uses to finance an equity investment in the debtor country.

Correct AnswerverifiedShow Answer

IMF drawings,swap arrangements,buffer stock facility,and compensatory financing for exports are classified as owned reserves rather than borrowed reserves.

Correct AnswerverifiedShow Answer

To reduce their exposure to developing country debt,lending commercial banks have practiced all of the following except:

Correct AnswerverifiedShow Answer

By the 1990s,the British pound had replaced the U.S.dollar as the world's key currency.

Correct AnswerverifiedShow Answer

The value of the SDR is tied to a currency basket consisting of the U.S.dollar,German mark,Japanese yen,French franc,and British pound.

Correct AnswerverifiedShow Answer

In the 1970s,the major industrial countries abandoned the managed-floating exchange rate system and adopted a system of fixed exchange rates tied to the price of gold.

Correct AnswerverifiedShow Answer

To reduce losses on developing country loans,commercial banks sometimes sell their loans,at a discount,to a developing country government for local currency which is then used to finance purchases of ownership shares in developing country industries.This practice is known as:

Correct AnswerverifiedShow Answer

Concerning international lending risk of commercial banks,____ is closely related to political developments in a borrowing country,especially the government's views concerning international investments and loans.

Correct AnswerverifiedShow Answer

The exchange of borrowing country debt for an ownership position in the borrowing country is known as:

Correct AnswerverifiedShow Answer

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