Facts Flashcards

Question 1

Q

China

Answer

A

Currency: Yuan, CNY. Fiat currency. Managed floating exchange rate system pegged to a basket of international currencies (USD, Euro). The Yuan is intentionally devalued and the government also subsidies importing firms
Exports: Electrical vehicles, computers

Question 2

Q

Greek debt crisis

Answer

A

Phase 1:Greek began to accrue higher govenrment debt 15.6% GDP at one point, as the Greek government continuously spent on public services, public wage increases and other forms of social spending. The government couldn’t print money due to the strict conduct of monetary policy due to Greece being part of a monetary union. The new insight of the huge debt accrued led bond markets to lose confidence in Greeces economy. Greece turned to the IMF and the EU for help
Phase 2: Other European governments at the time were facing increasing difficulty in borrowing due to loss of confidence in other European countries. When bonds were issued they were viewed as more risky
France and Germany were the main creditors of Greeces debt
Bail out plan: Greek underwent tough austerity and reduce pensions, cut public sector wages, tax increases to receive a loan of €110 billion from the IMF and the EU. The ECB also stepped in and bought Greek bonds on the secondary market

Question 3

Q

Japan’s lost decade 1989

Answer

A

Prolonged period of time of stagflation, deflation, and low growth following the collapse of its asset price bubble
How did japan revive its economy: 1.monetary policy. Central bank of Japan dramatically expanded its quantitive easing (QE) programme. The central bank instated a ZIRP (zero interest rate policy)
2.Fiscal policy
3.structural reforms in the form of deregulation of labour markets and other industries

Question 4

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Financial crisis 2008

Answer

A

Investors began to set their eyes on US housing market in hope of greater returns instead of other financial assets such as US treasury bonds that yielded smaller returns
Investors were desperate to buy more mortgage backed security and lenders began to loosen borrowing constrains and lend to more ‘risky borrowers’(those on low incomes and poor credits- often called subprime mortgages).
The prices of housing was increasing significantly leading to this overshadow that even if individuals default on loans the asset acquired can be sold to recoup any losses. The housing bubble popped leading to defaults on loans. There were many houses on markets due to default but low demand leading to housing prices plummeting. Debtors that could have paid mortgages stopped paying due to mortgage payments far outweighing the price of the home itself. This led to even more default
Many financial institutions declared bankruptcy such as the Lehman Brothers
How did the US recover from the financial crisis ?
The federal reserve began to provide emergency loans to banks and also bail them out
Fiscal policy
How did the UK recover from he financial crisis ?
Bank bailouts
Monetary easing (low interest rates, wquantittive easing to lower long term borrowing costs)
From 2010 onwards, the government implemented a deficit reduction startagey focussing on austerity

Question 5

Q

What is a mortgage backed security ?

Answer

A

Large financial institutions buy up a bundle (a pool) or mortgages and then distribute shares of those mortgages to investors. Investors own claims on income streams from mortgages. These are safe investments when lending is happening to people with good credit.