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© 2014 Pearson Canada Inc.#
A capital ____ can promote financial instability in an emerging-market country because
it can lead to a lending boom and excessive risk-taking on the part of banks, which helps trigger
a ____.
A) inflow; financial crisis
B) inflow; currency devaluation
C) outflow; financial crisis
D) outflow; currency devaluation
Answer: A
Diff: 1 Type: MC Page Ref: 508
Skill: Recall
Objective List: 20.3 Summarize the arguments for and against capital controls
A case for capital inflow controls can be made because capital inflows ____.
A) can cause a lending boom and lead to excessive risk taking
B) never finance productive investments
C) always finance productive investments
D) are less likely to cause financial crises than regulation of banking activities
Answer: A
Diff: 1 Type: MC Page Ref: 508 - 509
Skill: Recall
Objective List: 20.3 Summarize the arguments for and against capital controls
20.5 The Role of the IMF
In the 1990s, this agency has acted like an international lender of last resort to cope with
financial instability.
A) World Bank
B) European Central Bank
C) IMF
D) International Bank for Reconstruction and Development
Answer: C
Diff: 1 Type: MC Page Ref: 509
Skill: Recall
Objective List: 20.4 Depict the role of the IMF as an international lender of last resort
An international lender of last resort creates a serious ____ problem because depositors
and other creditors of banking institutions expect that they will be protected if a crisis occurs.
A) moral hazard
B) adverse selection
C) public choice
D) strategic choice
Answer: A
Diff: 1 Type: MC Page Ref: 509
Skill: Recall
Objective List: 20.4 Depict the role of the IMF as an international lender of last resort