Question 1

A pegged exchange rate means the value of the currency is fixed relative to a reference currency, and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is an argument for a fixed exchange rate system?

Accepted Answer

A)  Governments can contract their money supply without worrying about the need to maintain parity.
B)  Trade balance adjustments do not require the intervention of the International Monetary Fund.
C)  It ensures that governments do not expand the monetary supply too rapidly, thus causing high price inflation.
D)  Speculations in exchange rates boost exports and reduce imports.
E)  Each country should be allowed to choose its own inflation rate.F) C) and D)
G) All of the above

Question 3

Which of the following describes a country when the income its residents earn from exports is equal to the money its residents pay to other countries for imports?

Accepted Answer

A)  A currency crisis
B)  Balance-of-trade equilibrium
C)  Balance-of-payments deficit
D)  Balance-of-trade surplus
E)  Fiscal deficitF) C) and D)
G) B) and E)

Question 4

In a fixed exchange rate system, the central bank of a country will intervene in the foreign exchange market to try to maintain the value of its currency if it depreciates too rapidly against an important reference currency.

Accepted Answer

A) True 
 B)False

Question 5

What was the drawback of the Bretton Woods system?

Accepted Answer

The Bretton Woods system had an Achilles...

Question 6

Some IMF economists argue that higher inflation rates might be good if the consequence is greater growth in aggregate demand.

Accepted Answer

A) True 
 B)False

Question 7

The objective of establishing the World Bank was to:

Accepted Answer

A)  revive the gold standard.
B)  promote general economic development.
C)  control and manage the International Monetary Fund.
D)  promote a floating exchange rate system.
E)  approve large currency devaluations.F) A) and B)
G) B) and D)

Question 8

The rise in the value of the dollar between 1980 and 1985 occurred when the United States was running a large and growing trade deficit. Explain the factors that led to this rise.

Accepted Answer

The rise in the value of the dollar betw...

Question 9

Which of the following was responsible for the World Bank shifting its focus from Europe to third-world nations?

Accepted Answer

A)  The Great Depression
B)  The Jamaica agreement
C)  World War II
D)  The Marshall Plan
E)  The Bretton Woods agreementF) B) and D)
G) A) and E)

Question 10

In terms of monetary policy autonomy, how does a floating exchange rate system differ from a fixed system?

Accepted Answer

It is argued that under a fixed system, ...

Question 11

Which of the following statements is true about the gold standard?

Accepted Answer

A)  Given a common gold standard, the value of any currency in units of any other currency was easy to determine.
B)  Establishing a gold standard seemed impractical as the volume of international trade expanded in the wake of the Industrial Revolution.
C)  A drawback of the gold standard was that it failed to provide a mechanism for achieving balance-of-trade equilibrium by all countries.
D)  Under the gold standard, when a country has a trade deficit, there will be a net flow of gold from the other countries to that country.
E)  The gold standard refers to the use of gold coins as a medium of exchange between countries involved in international trade.F) D) and E)
G) A) and D)

Question 12

Which of the following observations about the International Monetary Fund (IMF)  is true?

Accepted Answer

A)  The IMF can force countries to adopt the policies required to correct economic mismanagement.
B)  Internal political problems can affect a government's commitment to taking corrective action in return for an IMF loan.
C)  In recent years, the IMF has begun to make its policies more tight and inflexible.
D)  In response to the global financial crisis of 2008-2009, the IMF began to adopt a "one-size-fits-all" approach to macroeconomic policy.
E)  In recent years, the IMF has begun to urge countries to oppose fiscal stimulus and monetary easing.F) C) and D)
G) A) and B)

Question 13

Which of the following observations about the International Development Association (IDA)  scheme of the World Bank is true?

Accepted Answer

A)  Money is raised through bond sales in the international capital market.
B)  Borrowers have up to 50 years to repay at an interest rate of less than 1 percent a year.
C)  IDA loans go only to European countries.
D)  Grants and interest-free loans are denied to governments of underdeveloped nations.
E)  The bank offers loans only to customers with a satisfactory credit rating.F) A) and B)
G) A) and E)

Question 14

Given a common gold standard, the value of any currency in units of any other currency (the exchange rate) was easy to determine.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following poses a problem for international businesses in the long run?

Accepted Answer

A)  Using exchange rate instruments like the forward market and swaps
B)  Volatility of the global exchange rate regime
C)  Anti-inflationary monetary policies
D)  Maintaining strategic flexibility by dispersing production to different locations
E)  A policy of reduction in government spendingF) B) and C)
G) A) and E)

Question 16

Which of the following refers to a system under which a country's currency is nominally allowed to float freely against other currencies, but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value?

Accepted Answer

A)  Fixed float
B)  Clean float
C)  Pegged float
D)  Dirty float
E)  Capital floatF) A) and C)
G) B) and D)

Question 17

Vornoda Inc., a multinational clothing and accessory brand, has been facing huge economic losses due to unpredictable exchange rate movements. In order to gain considerable immunity against such currency fluctuations, Vornoda Inc. should:

Accepted Answer

A)  pursue strategies that increase its economic exposure.
B)  avoid using instruments like forward market and swaps.
C)  disperse production to different locations around the globe.
D)  not contract out manufacturing.
E)  restrict its low-value-added manufacturing to one location.F) B) and E)
G) A) and D)

Question 18

Describe the Jamaica agreement of 1976. What were the main elements of this agreement?

Accepted Answer

The floating exchange rate regime that f...

Question 19

In the face of unpredictable exchange rate movements, a firm should pursue strategies that reduce its economic exposure.

Accepted Answer

A) True 
 B)False

Question 20

How has the volatility of the current global exchange rate regime affected international businesses? How can the problem be tackled?

Accepted Answer

The volatility of the current global exc...

Exam 11: The International Monetary System

The rise in the value of the dollar between 1980 and 1985 occurred when the United States was running a large and growing trade deficit. Explain the factors that led to this rise.

Correct AnswerverifiedThe rise in the value of the dollar betw...View AnswerShow Answer

Which of the following observations about the International Development Association (IDA) scheme of the World Bank is true?

Correct AnswerverifiedShow Answer

Which of the following was responsible for the World Bank shifting its focus from Europe to third-world nations?

Correct AnswerverifiedShow Answer

Given a common gold standard, the value of any currency in units of any other currency (the exchange rate) was easy to determine.

Correct AnswerverifiedShow Answer

Which of the following refers to a system under which a country's currency is nominally allowed to float freely against other currencies, but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value?

Correct AnswerverifiedShow Answer

Describe the Jamaica agreement of 1976. What were the main elements of this agreement?

Correct AnswerverifiedThe floating exchange rate regime that f...View AnswerShow Answer

In terms of monetary policy autonomy, how does a floating exchange rate system differ from a fixed system?

Correct AnswerverifiedIt is argued that under a fixed system, ...View AnswerShow Answer

Which of the following describes a country when the income its residents earn from exports is equal to the money its residents pay to other countries for imports?

Correct AnswerverifiedShow Answer

In a fixed exchange rate system, the central bank of a country will intervene in the foreign exchange market to try to maintain the value of its currency if it depreciates too rapidly against an important reference currency.

Correct AnswerverifiedShow Answer

A pegged exchange rate means the value of the currency is fixed relative to a reference currency, and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate.

Correct AnswerverifiedShow Answer

Which of the following poses a problem for international businesses in the long run?

Correct AnswerverifiedShow Answer

Which of the following statements is true about the gold standard?

Correct AnswerverifiedShow Answer

Which of the following observations about the International Monetary Fund (IMF) is true?

Correct AnswerverifiedShow Answer

Vornoda Inc., a multinational clothing and accessory brand, has been facing huge economic losses due to unpredictable exchange rate movements. In order to gain considerable immunity against such currency fluctuations, Vornoda Inc. should:

Correct AnswerverifiedShow Answer

In the face of unpredictable exchange rate movements, a firm should pursue strategies that reduce its economic exposure.

Correct AnswerverifiedShow Answer

The objective of establishing the World Bank was to:

Correct AnswerverifiedShow Answer

Some IMF economists argue that higher inflation rates might be good if the consequence is greater growth in aggregate demand.

Correct AnswerverifiedShow Answer

Which of the following is an argument for a fixed exchange rate system?

Correct AnswerverifiedShow Answer

How has the volatility of the current global exchange rate regime affected international businesses? How can the problem be tackled?

Correct AnswerverifiedThe volatility of the current global exc...View AnswerShow Answer

What was the drawback of the Bretton Woods system?

Correct AnswerverifiedThe Bretton Woods system had an Achilles...View AnswerShow Answer

Correct Answer
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The rise in the value of the dollar betw...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The floating exchange rate regime that f...
View Answer

Correct Answer
verified
It is argued that under a fixed system, ...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The volatility of the current global exc...
View Answer

Correct Answer
verified
The Bretton Woods system had an Achilles...
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