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1Copyright©2016PearsonEducation,Ltd.EconomicsofMoney,Banking,andFinancialMarkets,11e,GlobalEdition(Mishkin)Chapter13FinancialCrisesinEmergingMarketEconomies13.1DynamicsofFinancialCrisesinEmergingMarketEconomies1)FinancialcrisesgenerallydevelopalongtwobasicpathsA)mismanagementoffinancialliberalization/globalizationandseverefiscalimbalances.B)stockmarketdeclinesandseverefiscalimbalances.C)mismanagementoffinancialliberalization/globalizationandstockmarketdeclines.D)stockmarketdeclinesandunanticipateddeclinesinthevalueofthedomesticcurrency.Answer:AAACSB:ReflectiveThinking2)Inemergingmarketcountries,thedeteriorationinbank'sbalancesheetshasmore________effectsonlendingandeconomicactivitythaninadvancedcountries.A)negativeB)positiveC)affirmingD)advancingAnswer:AAACSB:ReflectiveThinking3)AllofthefollowingmightcreateproblemsfromfinancialliberalizationinemergingcountriesEXCEPTA)ineffectivescreeningofborrowers.B)limitsonrisk-taking.C)laxgovernmentsupervisionofbanks.D)lendersfailuretomonitorborrowers.Answer:BAACSB:ReflectiveThinking4)ThemismanagementoffinancialliberalizationinemergingmarketcountriescanbeunderstoodasasevereA)principal/agentproblem.B)asymmetricinformationproblem.C)lemonsproblem.D)free-riderproblem.Answer:AAACSB:ReflectiveThinking5)FactorslikelytocauseafinancialcrisisinemergingmarketcountriesincludeA)severefiscalimbalances.B)decreasesinforeigninterestrates.C)aforeignexchangecrisis.D)toostrongoversightofthefinancialindustry.Answer:AAACSB:ReflectiveThinking2Copyright©2016PearsonEducation,Ltd.6)ThetwokeyfactorsthattriggerspeculativeattacksonemergingmarketcurrenciesareA)deteriorationinbankbalancesheetsandseverefiscalimbalances.B)deteriorationinbankbalancesheetsandlowinterestratesabroad.C)lowinterestratesabroadandseverefiscalimbalances.D)lowinterestratesabroadandrisingassetprices.Answer:AAACSB:ReflectiveThinking7)SeverefiscalimbalancescandirectlytriggeracurrencycrisissinceA)investorsfearthatthegovernmentmaynotbeabletopaybackthedebtandsobegintoselldomesticcurrency.B)thegovernmentmaystopprintingmoney.C)thegovernmentmayhavetocutbackonspending.D)thecurrencymustsurelyincreaseinvalue.Answer:AAACSB:ReflectiveThinking8)Inemergingmarketcountries,manyfirmshavedebtdenominatedinforeigncurrencylikethedollaroryen.AdepreciationofthedomesticcurrencyA)resultsinincreasesinthefirm'sindebtednessindomesticcurrencyterms,eventhoughthevalueoftheirassetsremainsunchanged.B)resultsinanincreaseinthevalueofthefirm'sassets.C)meansthatthefirmdoesnotoweasmuchontheirforeigndebt.D)strengthenstheirbalancesheetintermsofthedomesticcurrency.Answer:AAACSB:ReflectiveThinking9)AsharpdepreciationofthedomesticcurrencyafteracurrencycrisisleadstoA)higherinflation.B)lowerimportprices.C)lowerinterestrates.D)decreaseinthevalueofforeigncurrency-denominatedliabilities.Answer:AAACSB:ReflectiveThinking10)ThekeyfactorleadingtothefinancialcrisesinMexicoandtheEastAsiancountrieswasA)adeteriorationinbanks'balancesheetsbecauseofincreasingloanlosses.B)severefiscalimbalances.C)asharpincreaseinthestockmarket.D)asharpdeclineininterestrates.Answer:AAACSB:ApplicationofKnowledge3Copyright©2016PearsonEducation,Ltd.11)FactorsthatledtoworseningconditionsinMexico's1994-1995financialmarketsincludeA)failureoftheMexicanoilmonopoly.B)theratificationoftheNorthAmericanFreeTradeAgreement.C)increaseduncertaintyfrompoliticalshocks.D)declineininterestrates.Answer:CAACSB:ApplicationofKnowledge12)FactorsthatledtoworseningfinancialmarketconditionsinEastAsiain1997-1998includeA)weaksupervisionbybankregulators.B)ariseininterestratesabroad.C)unanticipatedincreasesinthepricelevel.D)increaseduncertaintyfrompoliticalshocks.Answer:AAACSB:ApplicationofKnowledge13)FactorsthatledtoworseningconditionsinMexico's1994-1995financialmarkets,butdidnotleadtoworseningfinancialmarketconditionsinEastAsiain1997-1998includeA)riseininterestratesabroad.B)bankers'lackofexpertiseinscreeningandmonitoringborrowers.C)deteriorationofbanks'balancesheetsbecauseofincreasingloanlosses.D)stockmarketdecline.Answer:AAACSB:ApplicationofKnowledge14)Argentina'sfinancialcrisiswasduetoA)poorsupervisionofthebankingsystem.B)alendingboompriortothecrisis.C)fiscalimbalances.D)lackofexpertiseinscreeningandmonitoringborrowersatbankinginstitutions.Answer:CAACSB:ApplicationofKnowledge15)Afeatureofdebtmarketsinemerging-marketcountriesisthatdebtcontractsaretypicallyA)veryshortterm.B)longterm.C)intermediateterm.D)perpetual.Answer:AAACSB:AnalyticalThinking4Copyright©2016PearsonEducation,Ltd.16)Theeconomichardshipresultingfromafinancialcrisesissevere,however,therearealsosocialconsequencessuchasA)increasedcrime.B)difficultygettingaloan.C)currencydevaluations.D)lossofoutput.Answer:AAACSB:ReflectiveThinking17)BeforetheSouthKoreanfinancialcrisis,salesbythetopfivechaebols(family-ownedconglomerates)wereA)nearly50%ofGDP.B)about10%ofGDP.C)almost90%ofGDP.D)nearly25%ofGDP.Answer:AAACSB:ApplicationofKnowledge18)ThechaebolsencouragedtheKoreangovernmenttoopenupKoreanfinancialmarketstoforeigncapital.TheKoreangovernmentrespondedbyA)allowingunlimitedshort-termforei