Chapter 11 Multiple-choice questions

1. The existence of money is a beneficial to international business because:

Each country has its own currency.

Each country has its own exchange rate.

Every country's money is acceptable in exchange for goods and services.

It facilitates international trade and investment.

2. The International Monetary Fund is important because:

It has sufficient financial resources to deal with a major global financial crisis.

It has sufficient financial resources to help individual countries facing balance of payments problems.

Emerging economies can exercise significant influence on it.

It fixes exchange rates.

3. Following the onset of the global financial crisis in 2007/8 governments in the US, the UK and Japan, and subsequently the Eurozone, embarked on a policy of quantitative easing (QE). Usually this involves them:

Buying shares on the stock exchange.

Selling government bonds.

Buying government bonds.

Making mortgages on houses easier to obtain.

4. Which of the following characterize the early stages of a financial crisis?

Excessive euphoria about the future price of certain assets.

Excessive pessimism about future asset prices.

Stable house prices.

Stagnating share prices.

5. Which of the following are characteristic of the period when financial bubbles burst?

Excessive optimism about future asset prices.

Excessive pessimism about future asset prices.

Stable house prices.

Rising share prices.

6. The financial crisis of 2007/08 started in the USA. It spread to other countries because:

Foreign banks had bought securities based on US sub-prime mortgages.

Bank of China had lent massively to sub-prime borrowers in the USA.

European banks were taken into public ownership.

Banks in developing economies had invested heavily in US sub-prime mortgages.

7. How do banks facilitate international trade and investment?

They are reluctant to lend for projects involving foreign trade and investment.

They bundle up assets with varying degrees of risk and sell them on.

They offer payment systems making it easier to export and import goods and services.

They charge low rates of interest on their loans.

8. Which of the following functions do financial institutions traditionally perform?

They immobilize savings.

They concentrate risk.

They spread risk.

They offer only short-term finance.

9. Why has there been much cross-border restructuring in the financial sector?

Banks preferred to move into other countries rather than diversify their product range.

Financial institutions wanted to move to countries that were more tightly regulated.

Financial institutions wanted to take advantage of expanding markets in South East Asia.

Western financial institutions were becoming increasingly concerned about the threat of increased competition from Japanese banks.

10. Effective regulation of financial institutions is required at international level because that would:

Help avoid a credit crunch that would make it difficult for business and consumers to borrow from the banks.

Help ensure the stability of the global financial system.

Regulate banks in their domestic and their foreign operations.

All of the options above.

Chapter 11 Multiple-choice questions

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