Chapter 8 International Lending and Financial Cris...
Exercises
1.Single-choice questions
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2.Essay questions
(1)
An imbalanced economic phenomenon that under the strikes of both inside and outside, most or all financial assets become volatile exceedingly at size and price in a period of time, which makes the financial market cannot function well, and affect the real economy.
Main types:
Currency crisis
Banking crisis
Foreign debt crisis
Systemic financial crisis
(2)
Currency crisis:
(direct)speculative attacks;
(possible)recession of macro economy, variation of anticipation and government’s discretionary approaches; morality hazard, financial institution deteriorate; financial crisis spread
Bank crisis:
(direct)incapability on payment;
(possible)economic cycle variation; asymmetric information→morality hazard;psychological issue, a run on the bank
(3)
a.Short term capital flow→speculative attack
b.International capital flow→financial crisis spread
c.Capital inflow→macro economy imbalance
d.Capital inflow→fragile bank system
e.Excessive foreign debt
f.Outflow and inflow of international portfolio market→volatile portfolio market
(4)
a.The rich oil-exporting nations had a high short-run propensity to save out of their extra income.
b.There was widespread pessimism about the profitability of capital formation in industrialized countries.
c.In developing countries, the 1970s was an era of peak resistance to foreign direct investment (FDI)
d.“Herding” behavior meant that the lending to developing countries acquired a momentum of its own once it began to increase.
(5)
a.Rescue packages
When a financial crisis hits a country, that country’s government usually seeks a rescue package of loan commitments to assist it in getting through the crisis.
b.Debt restructuring
Debt restructuring refers to two types of changes in the terms of debt:
Debt rescheduling changes when payments are due, by pushing the repayments schedule further into the future.The amount of debt is effectively the same, but the borrower has a longer time to pay it off.
Debt reduction lowers the amount of debt.