Discussion Questions

Submit the answers to the following questions in the unit 14 drop box. You must explain your answer and provide your supporting computations. Yes/No answers or simple numbers are not acceptable and will not receive full credit.

1. If the U.S. dollar fell sharply in value and the U.S. could no longer pay its depts to foreigners, how could the IMF be of help? In what way could the IMF have been of help prior to the occurrence of these problems?

2. How does herding behavior and self-fulfilling expectations contribute to a financial crises and to the possibility of contagion? Explain.

3. Is a financial crises more likely to be associated with foreign direct investment or portfolio investment? Explain. Is a financial crises more likely to occur in developed countries or less developed countries? How does your answer relate to problems in the EU?

4. Can the IMF make a small countries financial crises worse? Explain.

5. What is the World Bank's main function and can the World Bank sustain profitability by strictly following its charter? Explain.

6. List and support three proposals to restructure the international financial architecture.

7. When compared to portfolio investment, why is FDI a more stabilizing type of capital flow to developing nations?