Which of the new risk-shifting tools enabled investment banks to carve out AAA-rated securities from original-issue “junk” loans?
A. Collateralized debt obligations
B. Credit default swaps
Credit default swap options
D. Credit spread forward
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Which of the following arises when the knowledge that IMF rescue packages are possible leads lenders to be less careful about their international lending practices?
A. Global contagion
B. Moral hazard
C. Debt overhang
Debt restructuring
Which of the following is a plausible effect of a rescue package provided to a country?
A. It can stimulate the outflow of capital from the country.
B. The rescue package can limit any contagion effects.
C. It immediately restarts new private foreign lending to the country.
D. It can help avoid the problem of moral hazard.
Which of the following measures to resolve financial crises involves loan commitments to assist a country in getting through a crisis?
A. Debt repudiation
B. Loan amortization
C. A rescue package
Debt restructuring
Which is NOT a potential cost faced by nations that choose against repaying their debts?
A loss of future creditworthiness
B. A loss of foreign assets
C. Moral hazard
Domestic recession