Questions for Lecture Notes 4 - Development Banks

Multiple-Choice Questions for "Lecture Notes 4 - Development Banks" 1. What is the primary role of development banks? A) Providing short-term consumer loans B) Offering long-term capital for industry development C) Managing foreign exchange reserves D) Regulating commercial banking activities 2. Which event led to the establishment of many government-sponsored financial institutions? A) The Industrial Revolution B) World War I C) The Great Depression D) The Cold War 3. Development banks mainly provide funding to which type of businesses? A) Large multinational corporations B) Startups and high-risk ventures C) Only government-owned enterprises D) Informal sector businesses 4. Which of the following is a key source of funds for development banks? A) Cryptocurrency investments B) International financial institutions and government funding C) Personal savings accounts D) Private venture capital firms 5. Why do commercial banks often fail to provide long-term financing for industries? A) They prioritize short-term, lower-risk investments B) They lack sufficient funds C) They only offer loans to individuals, not businesses D) They operate under government restrictions 6. What is a major reason development banks exist in developing countries? A) To replace private banks B) To provide additional financial capital for economic growth C) To focus exclusively on financing agriculture D) To offer subsidies for government employees 7. Which of the following is NOT a common challenge faced by development banks? A) High loan delinquency rates B) Political interference C) Overfunding from private investors D) High administrative costs 8. Why do development banks sometimes offer interest rate subsidies? A) To make loans more accessible for new enterprises B) To compete directly with commercial banks C) To discourage borrowing from private institutions D) To ensure that only high-income borrowers qualify 9. What is a key operational challenge for development banks? A) Managing cryptocurrency investments B) Striking a balance between commercial returns and social objectives C) Providing loans only to government projects D) Competing with online lending platforms 10. How do development banks differ from commercial banks? A) They prioritize social and economic development over profit B) They only provide small personal loans C) They charge significantly higher interest rates D) They mainly deal with foreign exchange services 11. Which of the following is a risk cost associated with development bank lending? A) The loss of loan capital due to defaults B) High marketing expenses C) Increased competition from commercial banks D) Excessive taxation on loan repayments 12. Why do development banks provide technical assistance to their clients? A) To improve production practices and managerial skills B) To increase loan interest rates C) To encourage businesses to take on more debt D) To eliminate competition from commercial banks 13. What is one way development banks try to reduce high administrative costs? A) Increasing the size of individual loans B) Eliminating loan application requirements C) Relying solely on government subsidies D) Only providing funds to multinational corporations 14. Why is there often a perception that development banks provide grants instead of loans? A) Borrowers assume government-backed loans do not require repayment B) Development banks do not enforce loan contracts C) Interest rates are extremely high D) They operate without any legal framework 15. Which of the following is NOT a feature of development banks? A) They provide long-term financing B) They focus on economic development C) They operate independently of government influence D) They offer technical assistance to borrowers 16. How can development banks achieve financial stability? A) By diversifying their funding sources B) By eliminating all risk-taking activities C) By relying solely on government subsidies D) By only providing loans to large corporations 17. What is one disadvantage of development banks acting as credit wholesalers? A) They cannot influence how commercial banks allocate funds B) They are required to provide loans at high interest rates C) They do not have access to international funding D) They only offer short-term credit solutions 18. What is a major reason why development banks often struggle with cost recovery? A) Loan delinquency and weak enforcement of repayment policies B) Too many high-interest loans being issued C) Lack of government involvement D) Excessive commercial profitability 19. Which of the following is a potential solution for development banks to improve operational efficiency? A) Expanding their portfolio size to achieve economies of scale B) Reducing loan approvals for new businesses C) Eliminating long-term financing options D) Investing primarily in foreign companies 20. What is a common strategy for reducing risk costs in development bank lending? A) Credit rationing and limiting loans to established enterprises B) Issuing loans without any collateral requirements C) Increasing interest rates to unsustainable levels D) Eliminating all financial oversight mechanisms Answers: 1. B) Offering long-term capital for industry development 2. B) World War I 3. B) Startups and high-risk ventures 4. B) International financial institutions and government funding 5. A) They prioritize short-term, lower-risk investments 6. B) To provide additional financial capital for economic growth 7. C) Overfunding from private investors 8. A) To make loans more accessible for new enterprises 9. B) Striking a balance between commercial returns and social objectives 10. A) They prioritize social and economic development over profit 11. A) The loss of loan capital due to defaults 12. A) To improve production practices and managerial skills 13. A) Increasing the size of individual loans 14. A) Borrowers assume government-backed loans do not require repayment 15. C) They operate independently of government influence 16. A) By diversifying their funding sources 17. A) They cannot influence how commercial banks allocate funds 18. A) Loan delinquency and weak enforcement of repayment policies 19. A) Expanding their portfolio size to achieve economies of scale 20. A) Credit rationing and limiting loans to established enterprises Multiple-Choice Questions for "Lecture Notes 5 - Microfinancing" 1. What is microfinancing primarily designed for? A) Providing large business loans B) Offering financial products to low-income groups C) Funding multinational corporations D) Regulating stock markets 2. Which of the following is NOT a category of microfinance providers? A) Formal institutions B) Semi-formal institutions C) Informal providers D) Cryptocurrency exchanges 3. Which of the following is an example of an informal microfinance provider? A) Commercial banks B) Credit unions C) Rotating Savings and Credit Associations (ROSCAs) D) Government loan agencies 4. What is a key challenge faced by poor individuals when accessing formal financial institutions? A) High literacy requirements B) Lack of sufficient collateral C) Strict travel restrictions D) Excessive access to credit 5. According to Rutherford (2000), what is the primary purpose of microfinance? A) To replace traditional banking B) To convert small savings into lump sums C) To eliminate the need for loans D) To subsidize government projects 6. What are the three main mechanisms for transforming savings into lump sums? A) Investments, crowdfunding, and donations B) Savings deposits, loans, and insurance C) Venture capital, government grants, and stocks D) Taxation, remittances, and inheritance 7. According to Gulli and Berger (1999), which of the following is NOT a potential benefit of microfinance? A) Investment in productive assets B) Building social capital C) Reducing vulnerability to income shocks D) Eliminating poverty entirely 8. What is a key feature of microfinance institutions (MFIs)? A) They offer large-scale loans to corporations B) They provide financial services to low-income individuals C) They primarily invest in stock markets D) They require high credit scores for loans 9. Why do microfinance institutions often charge high interest rates? A) To maximize their profit margins B) Because lending to small borrowers is risky C) To discourage borrowing D) To eliminate competition with commercial banks 10. What is a common characteristic of loans issued by MFIs? A) They are repaid in large, annual installments B) They typically involve tiny, frequent repayments C) They require government approval D) They are only available to business owners 11. Which model of microfinance has been widely copied worldwide? A) The Wall Street Model B) The Silicon Valley Model C) The Grameen Model D) The European Central Bank Model 12. According to Hulme and Mosley (1996), why might the poorest of the poor not access microfinance? A) They lack the necessary business experience B) They have too many financial options C) They are not allowed to borrow under government regulations D) They are targeted for large-scale investment projects 13. What is one common way MFIs encourage loan repayment? A) Offering progressively larger loans to successful borrowers B) Confiscating borrower assets immediately upon default C) Imposing severe legal penalties for non-repayment D) Offering no consequences for loan defaults 14. Why do some critics argue that microfinance does not always help the poorest individuals? A) Many MFIs target clients who are not extremely poor B) Microfinance eliminates all financial risks C) Borrowers are required to have significant savings before applying D) Government policies prevent poor individuals from borrowing 15. Which of the following is a limitation of microfinance? A) It guarantees long-term business success B) It does not always reach the poorest individuals C) It is exclusively available in developed countries D) It only supports large corporate enterprises 16. What is one of the most significant impacts of microfinance institutions? A) They eliminate all forms of poverty B) They help small borrowers gain access to credit C) They provide long-term funding for multinational corporations D) They increase government taxation revenues 17. Why might some very poor individuals avoid taking microloans? A) They prefer investing in stock markets B) They are often risk-averse and hesitant to take on debt C) They have access to unlimited government funding D) They receive high-interest loans from commercial banks 18. According to Hulme (2000), why is microfinance not a "magic bullet" for poverty reduction? A) It does not address structural economic issues B) It is only available in wealthy countries C) It focuses solely on large-scale enterprises D) It is regulated exclusively by central banks 19. What does Muhammad Yunus argue about the impact of microfinance? A) It can help create a cycle of income growth and reinvestment B) It should be eliminated in favor of government welfare programs C) It has no impact on economic development D) It should only be used for large industrial projects 20. What was the purpose of the Microcredit Act 2021? A) To eliminate all microfinance institutions B) To regulate microcredit institutions and prevent predatory lending C) To increase interest rates for low-income borrowers D) To ban informal savings groups Answers: 1. B) Offering financial products to low-income groups 2. D) Cryptocurrency exchanges 3. C) Rotating Savings and Credit Associations (ROSCAs) 4. B) Lack of sufficient collateral 5. B) To convert small savings into lump sums 6. B) Savings deposits, loans, and insurance 7. D) Eliminating poverty entirely 8. B) They provide financial services to low-income individuals 9. B) Because lending to small borrowers is risky 10. B) They typically involve tiny, frequent repayments 11. C) The Grameen Model 12. A) They lack the necessary business experience 13. A) Offering progressively larger loans to successful borrowers 14. A) Many MFIs target clients who are not extremely poor 15. B) It does not always reach the poorest individuals 16. B) They help small borrowers gain access to credit 17. B) They are often risk-averse and hesitant to take on debt 18. A) It does not address structural economic issues 19. A) It can help create a cycle of income growth and reinvestment 20. B) To regulate microcredit institutions and prevent predatory lending