MULTINATIONAL FINANCIAL MANAGEMENT

1. Crisis 1

A) How do costs of exchange rate crisis differ between rich and poor countries?

B) What is the phenomenon of "Triple Crisis" (BE SPECIFIC)?

C) What is the underlying cause behind a 1st generation crisis? Does a greater number of foreign reserves at the Central Bank lessen the probability of the crisis?

D) What is the underlying cause behind a 2nd generation crisis? Does a greater number of foreign reserves at the Central Bank lessen the probability of the crisis?

E) Suppose that "cost if credible" is C $ and "cost if not credible" is 2C $. The benefits of the pegging are 1$. For what range of C, will there be multiple equilibria? Why are there multiple equilibria?

2. Optimal Currency Area

A) What determines the costs of adopting a common currency?

B) What determines the benefits of adopting a common currency?

C) If you estimate the gravity model, and the estimated coefficient on Ln(distance i j) is -1.5% then that effect on volume of trade between two countries does a 20% increase in distance have?