Chapter 21 Financial Globalization: Opportunity and Crisis 122
6. Tighter regulation of U.S. banks increased their costs of operation and made them less competitive
7. Banks are more highly regulated and have more stringent reporting requirements than other financial
institutions. Securitization increases the role played by nonbank financial institutions over which
8. The extent of international diversification should go down because some consumption now depends
exclusively on local conditions. In that case, agents want assets correlated with the price of that
9. No, real interest rate equality is not an accurate barometer of international financial integration.
As we saw in Chapter 16, there is a real interest parity condition, which is that r r* %eq.
10. Canada’s current account to GDP ratio ranged from 4 percent to 3 percent over the period, and
on net was marginally positive, but close to zero. The moderate CA surplus in the last few years
11. U.S. gross foreign liabilities rise as the Brazilian has a claim on the fund, and U.S. assets rise as the
fund buys more Brazilian equity. Likewise, Brazil’s foreign assets and liabilities rise. But no U.S.
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