Finance & Macro
What conclusion can be drawn from empirical studies assessing the impact of financial development on the macroeconomy?
a) It increases long-run growth, improves income distribution, and reduces poverty.
b) It increases long-run growth except at very high levels of financial development and has no impact on income distribution or poverty
c) It increases long-run growth except at very low levels of financial development, but it improves income distribution and reduces poverty.
d) It increases long-run growth except at very high levels of financial development, improves income distribution and reduces poverty.
d) It increases long-run growth except at very high levels of financial development, improves income distribution and reduces poverty.
Which of the following is LEAST likely an advantage of domestic bond market development?
(a) Allows firms to raise capital in local currency and encourages domestic long-term and diversified funding.
(b) Serves as a “spare tire,” providing an alternative to bank financing during tight credit conditions or in times of crisis.
(c) Helps avoid a buildup of excessive foreign-currency-denominated debt and reduces exposure to interest rate, maturity, and currency risks.
(d) Promotes credit access for household and individuals.
(e) I don’t know.
(d) Promotes credit access for household and individuals.
As opposed to traditional financial products and delivery methods, fintech can benefit individuals currently excluded from the formal financial system because ________.
a) The amount of information the individuals need to provide to the fintech system is higher than a traditional financial system where face-to-face contact is made.
b) The individuals do not have enough money to participate in the formal financial system.
c) The individuals are physically distant from bank branches or other “brick and mortar” locations where financial services are traditionally provided.
d) Those individuals often have only a dedicated phone line in their home.
c) The individuals are physically distant from bank branches or other “brick and mortar” locations where financial services are traditionally provided.
The Global Findex inclusion indicators are grouped into which of the four broad categories?
(a) Account ownership; Payment service; Access to fintech; and Savings, credit, and financial resilience
(b) Account ownership; Payment service; Use of account; and Savings, credit, and financial resilience
(c) Account ownership; Mobile payment; Use of account; and Savings
(d) Account type; Access to fintech; Payment service; Savings, credit, and financial resilience
(e) I don’t know.
(b) Account ownership; Payment service; Use of account; and Savings, credit, and financial resilience
According to the 2022 Global Findex Survey, about 1,400 million adults in the world are “unbanked.” What does this refer to?
a) The share that do not have access to a bank branch.
b) The share that do not have a loan from a financial institution.
c) The share that do not have an account in a financial institution.
d) The share that do not have access to mobile banking.
c) The share that do not have an account in a financial institution.
Empirical studies clearly identify which financial structure (being more bank-based or market-based) is better for a country or how a mix of them should be calibrated. Whether or not market based, not having a corporate bond market is clearly detrimental for any country. – True or false?
Explain your answer
False, economies can strive with bank-based or market-based systems. It is desirable to develop those financial markets (in addition) that foster growth, turn savings into productive investments and help productive firms to satisfy its financing needs.
Furthermore, it is not necessary to have a corporate bond market for the economy to thrive.
Which of the following is MOST likely to be an appropriate government intervention to increase financial inclusion?
(a) Cap the interest rate on loans, to make credit more affordable for the poor.
(b) Legislation requiring banks to provide financial services to all households at affordable rates.
(c) Subsidize credit for all households.
(d) Support the development of credit registries or bureau to allow banks to have better information about potential borrowers.
(e) I don’t know.
(d) Support the development of credit registries or bureau to allow banks to have better information about potential borrowers.
What are reasons for a fintech firm to exit (graduate from) a regulatory sandbox?
A fintech firm exits when its purpose is achieved, and the offered product or service is ready for broader usage.
Each indicator of financial depth aims to reflect the extent to which the financial system in a given country and at a certain time is carrying out its essential functions. Which function is best reflected by ratio of liquid liabilities (M2) to GDP?
a) Providing information to economic agents
b) Economic growth
c) Mobilization of resources for investment
d) Management of risks between agents and across time
c) Mobilization of resources for investment
For the purposes of access to and use of financial services, what is different about SMEs?
While their small size makes it difficult for lenders to take advantage of economies of scale, the main distinctive feature of SMEs is their opacity. That is, the informational asymmetries that are always present in finance are likely to be even more pronounced for SMEs, and therefore there is a greater difficulty for them to receive credit.
Explain the "Too Much Finance" hypothesis in conceptual terms: what it states and what factors might cause this phenomenon to occur.
Then describe the main empirical findings that support this hypothesis.
Too Much Finance: the macroeconomic benefits (primarily economic growth) weaken as financial depth gets progressively larger. This can be because of greater financial stability risk or because of misallocation of resources.
The empirical literature finds an inverted U-shaped relationship between growth and private credit/GDP. The marginal benefit declines and eventually becomes negative at high levels of credit/GDP.
Compared to debt, a hybrid instrument typically has which of the following?
(a) Lower expected return and lower risk
(b) Lower expected return and higher risk
(c) Higher expected return and higher risk
(d) Higher expected return and lower risk
(e) I don’t know.
(c) Higher expected return and higher risk
Which of the following could impede the success of mobile banking in a low-income country?
(a) A geographically dispersed number of “cash-in, cash-out” or CICO, agents willing to exchange mobile money for cash and vice versa
(b) A high number of mobile phone subscriptions relative to the population
(c) A large (relatively) young population between the ages of 15 and 24
(d) Government regulation that requires all mobile money accounts to go through the formal, official payment system
(e) I don’t know.
(d) Government regulation that requires all mobile money accounts to go through the formal, official payment system
Which broad dimensions and agents in the financial system are captured in the composite financial development index (FD) constructed in 2015 by the IMF FMI (Sahay et al., 2015 y Svirydzenka, 2015)?
a) Depth, competition, and risk; banks and fintech
b) Depth, efficiency and access; institutions and markets
c) Efficiency, competition, and access; institutions and markets
d) Depth, efficiency and risk; banks and fintech
b) Depth, efficiency and access; institutions and markets
Which of the following statements best reflects the appropriate short-term objective for financial inclusion of firms and households?
a) Universal access to bank accounts for households and firms desirable, and so is universal access to credit for firms
b) Universal access to bank accounts for households is desirable, but not universal access to credit to firms.
c) Universal access is not desirable either to accounts for households or credit form firms.
d) Universal access to credit for firms is desirable, but not to accounts for households.
c) Universal access is not desirable either to accounts for households or credit form firms.
Which of the following statements best captures the state of financial inclusion around the world in the past decade?
(a) On a global scale there has been noteworthy progress in increasing inclusion, though in most countries some groups such as women and rural residents still lag behind.
(b) Worldwide, the introduction of mobile money has eliminated most gaps in financial inclusion.
(c) On a global scale there has been little increase in inclusion.
(d) While there has been progress in developed countries to the point where the population is fully included, there has been little visible progress in developing countries.
(e) I don’t know.
(a) On a global scale there has been noteworthy progress in increasing inclusion, though in most countries some groups such as women and rural residents still lag behind.
What essential roles do market makers play in developing capital markets? (Name three)
- Provide liquidity
- Aid in price discovery
- Providing inventory or securities
Central bank digital currencies can improve transmission of monetary policy? True or False? Explain your answer.
True! CBDCs can increase competition for bank deposit funding, increasing rates on deposits, which can strengthen the interest rate channel (higher interest rates = more saving, less spending/demand).
You just used the Finstats database to produce some graphs on financial development indicators. One graph shows that private credit/GDP in South Africa is at the 75th expected percentile and over double the regional average.
Explain what this means (assume that I do not know any of the terminology related to benchmarking).
At the 75th percentile, South Africa's private credit/GDP is higher than that of 3/4 of countries that share key characteristics that affect financial development: income, population size and density, geographic size, etc.
In addition, it is well above the average for its region (Sub Saharan Africa). Those countries do not necessarily share the above characteristics.
Name two reasons why a person or firm should not be financially included (for a particular financial service).
Some reasons may be:
- The person or firm does not need financial services.
- A firm or individual might be too risky to receive credit. Including them would entail a danger to financial stability.
- The social benefits to providing the person with the financial service are less than the costs.
Which of the following ways to provide financial education is LEAST likely to lead to positive outcomes?
(a) Delivering financial education via innovative and engaging mediums, such as television and media
(b) Providing free lectures on economics and finance to adults
(c) Providing individuals with relevant information around the time when they are making important financial decisions
(d) Providing targeted education to people with low-education that is relevant to their context
(e) I don’t know.
(b) Providing free lectures on economics and finance
What are key conditions that led to the emergence and growth of shadow banking (including in China)?
- Capital regulations
- Liquidity regulations
- Technological innovation
Explain three ways in which Fintech can increase financial inclusion. Give examples for each
- By reducing the distance barriers to accessing financial services: mobile money
- By lowering the costs of accessing financial services: mobile banking or mobile money
- By mitigating informational barriers through the use of alternative data: P2P lending or crowdfunding.
Which broad dimensions and agents in the financial system are captured in the composite financial development index (FD) constructed in 2015 by the IMF FMI (Sahay et al., 2015 y Svirydzenka, 2015)?
(a) Dimensions: Depth, competition, and risk; Agents: banks and fintech
(b) Dimensions: Efficiency, competition, and access; Agents: institutions and markets
(c) Dimensions: Depth, efficiency and access; Agents: institutions and markets
(d) Dimensions: Depth, efficiency and risk; Agents: banks and fintech
(e) I don’t know
(c) Dimensions: Depth, efficiency and access; Agents: institutions and markets
SMEs in your country have reported the following reasons for not getting external financing. As a policymaker, which of these is the best indication that there’s a need to take policy action to improve access to financing for SMEs?
(a) Competition is too high, and it does not make sense to expand business.
(b) Required documentation is too complex for SMEs to provide.
(c) SMEs prefer to stay small so they could receive tax breaks.
(d) There is sufficient internal funding to finance the projects.
(e) I don’t know.
(b) Required documentation is too complex for SMEs to provide.