IMF sample exam 1

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• Fiscal federalism the ability to transfer economic resources from areas with healthy economies to those suffering economic setbacks
• Financial account the balance of payment records all international purchases or sales of financial assets
• A positive financial account a country receives more money from selling assets to foreigners than it spends on foreign assets
• The risk premium the difference of riskiness of domestic and foreign bonds
• what is the p? is the extra return investors require on domestic bonds compared to foreign bonds due to their difference in risk
• the advantages to a country from having its currency being used as a reserve currency lower borrowing costs, global influence, more economic stability, seigniorage profit
• Feldstein-Horioka test of asset trade (argue) with perfect capital mobility between countries, no relationship between a country's savings and its investments
• Feldstein-Horioka test of asset trade (found) domestic savings and investments are strongly related, opposite to perfect capital mobility
• the convertibility law of 1991 in Argentina the law made Argentina's currency fully convertible to US dollars at one peso per dollar, sharply reducing inflation in 5 years
• euro currencies offshore currency deposits
• the gold standard "rules of the game" the central bank practices selling domestic assets in the face of deficit and buying domestic assets in the face of surplus
• current account the difference between export and import (ex-im)
• current account (assuming net unilateral transfer = 0) EXP-IMP+BPI, BSI is not included since it is noted that net unilateral transfers are 0
• what is optimal currency area? is a region for which a single currency and a single monetary policy are optimal
• four characteristics that help make a region an optimum currency area high internal trade, high factor mobility, similar economic shocks, strong fiscal system
• pricing to market when a firm sells the same product for different prices in different markets
• main function of the IMF economic surveillance, lending, capacity development
• balance of payments the sum of the current and capital account balances, minus the non-reserve financial account
• Problems without capital controls capital flight, currency collapse, banking crisis
• problem with capital control restricted access to funds, loss of investor confidence, black market development

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