Question 1

Which of the following refers to the institutional arrangements that govern exchange rates?

Accepted Answer

A)  Generally accepted accounting principles
B)  General agreement on tariffs and trade
C)  International monetary system
D)  General agreement on trade in services
E)  Financial management information systemF) B) and D)
G) B) and E)

Question 2

When the Bretton Woods participants established the World Bank, the need to lend money to third-world nations was foremost in their minds.

Accepted Answer

A) True 
 B)False

Question 3

How does a country that introduces a currency board make its commitment to converting its domestic currency on demand into another currency at a fixed exchange rate credible?

Accepted Answer

A)  By borrowing funds from the International Monetary Fund and the World Bank
B)  By maintaining a trade surplus with foreign countries
C)  By holding foreign currency reserves equal at the fixed exchange rate to at least 100 percent of the domestic currency issued
D)  By importing more goods from foreign countries than it exports
E)  By printing foreign currenciesF) A) and C)
G) D) and E)

Question 4

It is most appropriate for a firm to contract out manufacturing when:

Accepted Answer

A)  individual manufacturers have few firm-specific skills that contribute to the value of their product.
B)  the value of the host country currency is expected to appreciate.
C)  supplier switching costs are correspondingly high.
D)  firm-specific technology and expertise add significant value to the product.
E)  the currency used for pricing a product is anticipated to stay weak in the long run.F) None of the above
G) A) and E)

Question 5

Which of the following is a drawback of the currency board system?

Accepted Answer

A)  The ease with which governments can set and manipulate interest rates acts as a limitation.
B)  Higher domestic inflation rates compared to the inflation rate in the country to which the currency is pegged can make the currency uncompetitive.
C)  The currency board can issue additional domestic notes and coins even when there are no foreign exchange reserves to back it.
D)  The system is a true fixed exchange rate regime, because the domestic currency is fixed against other currencies.
E)  The system lacks commitment to convert domestic currency on demand into another currency.F) C) and D)
G) B) and C)

Question 6

The fall in the value of the U.S. dollar between 1985 and 1988 was caused by:

Accepted Answer

A)  economic growth in the developed countries of Europe.
B)  a fall in prices of exported U.S. goods.
C)  a trade surplus in the United States during the previous years.
D)  a combination of government intervention and market forces.
E)  the protectionism measures adopted by European countries.F) All of the above
G) A) and E)

Question 7

All countries were to fix the value of their currency in terms of gold but were not required to exchange their currencies for gold, according to the 1944:

Accepted Answer

A)  Bretton Woods agreement.
B)  Washington Consensus.
C)  World Bank treaty.
D)  Group of Five treaty.
E)  United Nations agreement.F) C) and E)
G) A) and B)

Question 8

Many of the world's developing nations peg their currencies, primarily to the:

Accepted Answer

A)  U.S. dollar.
B)  Saudi riyal.
C)  Japanese yen.
D)  Chinese yuan.
E)  German deutsche mark.F) C) and E)
G) B) and D)

Question 9

Which of the following is an implication of a currency crisis?

Accepted Answer

A)  It occurs due to a sharp appreciation in the value of a currency.
B)  It forces authorities to block large volumes of international currency reserves.
C)  A country in currency crisis is not eligible for loans from the International Monetary Fund.
D)  It results in the government sharply increasing interest rates to defend the prevailing exchange rate.
E)  A country in currency crisis faces sharp decreases in stock and property prices.F) A) and D)
G) A) and B)

Question 10

The 1944 Bretton Woods conference created two major international institutions that play a role in the international monetary system-the International Monetary Fund (IMF)  and the:

Accepted Answer

A)  United Nations.
B)  European Union.
C)  World Trade Organization.
D)  World Bank.
E)  G20.F) None of the above
G) B) and D)

Question 11

The international monetary system refers to a system to regulate fixed exchange rates before the introduction of the euro.

Accepted Answer

A) True 
 B)False

Question 12

The Bretton Woods system could work only as long as the U.S. inflation rate remained low and the United States did not run a balance-of-payments deficit.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is a common underlying macroeconomic cause of financial crises?

Accepted Answer

A)  Low relative price inflation rates
B)  Narrowing current account deficit
C)  Increases in stock and property prices
D)  Decline in domestic borrowing
E)  Increases in the value of domestic currencyF) A) and B)
G) A) and C)

Question 14

Which of the following observations is true of the Bretton Woods agreement?

Accepted Answer

A)  The participating countries were required to exchange their currencies for gold.
B)  Devaluation was accepted as a tool of competitive trade policy.
C)  The agreement called for a system of floating exchange rates.
D)  For weak currencies, devaluation of up to 10 percent was allowed without any formal approval by the International Monetary Fund.
E)  A fixed exchange rate system was deemed impractical.F) A) and E)
G) None of the above

Question 15

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

Accepted Answer

A)  Each country should be allowed to choose its own inflation rate.
B)  Speculation in exchange rates dampens the growth of international trade and investment.
C)  Unpredictability of exchange rate movements makes business planning difficult.
D)  Removal of the obligation to maintain exchange rate parity destroys a government's monetary control.
E)  Trade deficits can be determined by the balance between savings and investment in a country, not by the external value of its currency.F) B) and C)
G) C) and D)

Question 16

Critics of floating exchange rates claim that trade deficits are determined by the:

Accepted Answer

A)  balance between savings and investment in a country.
B)  external value of the currency of a country.
C)  exchange rates of other currencies.
D)  valuations made by International Monetary Fund and the World Bank.
E)  mechanism of competitive currency devaluation.F) B) and C)
G) A) and B)

Question 17

What changes have occurred in the International Monetary Fund in recent years?

Accepted Answer

It is notable that in recent years the I...

Question 18

All International Monetary Fund (IMF)  loan packages come with conditions attached. Which of the following is prevented due to these policies of the IMF?

Accepted Answer

A)  Trade liberalization
B)  Elimination of restrictive import licensing
C)  Excessive government spending and debt
D)  Privatization of state-owned assets
E)  Deregulation of the economy to increase competitionF) All of the above
G) A) and D)

Question 19

The architects of the Bretton Woods agreement wanted to avoid high unemployment, so they built the fixed exchange rate system to be highly inflexible.

Accepted Answer

A) True 
 B)False

Question 20

Without currency devaluation, a country in "fundamental disequilibrium" would experience:

Accepted Answer

A)  a persistent trade surplus.
B)  a balance-of-payments equilibrium.
C)  an increase in exports.
D)  high unemployment.
E)  deflation.F) B) and E)
G) D) and E)

Exam 11: The International Monetary System

The Bretton Woods system could work only as long as the U.S. inflation rate remained low and the United States did not run a balance-of-payments deficit.

Correct AnswerverifiedShow Answer

The 1944 Bretton Woods conference created two major international institutions that play a role in the international monetary system-the International Monetary Fund (IMF) and the:

Correct AnswerverifiedShow Answer

The international monetary system refers to a system to regulate fixed exchange rates before the introduction of the euro.

Correct AnswerverifiedShow Answer

The fall in the value of the U.S. dollar between 1985 and 1988 was caused by:

Correct AnswerverifiedShow Answer

All International Monetary Fund (IMF) loan packages come with conditions attached. Which of the following is prevented due to these policies of the IMF?

Correct AnswerverifiedShow Answer

What changes have occurred in the International Monetary Fund in recent years?

Correct AnswerverifiedIt is notable that in recent years the I...View AnswerShow Answer

Which of the following is an implication of a currency crisis?

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When the Bretton Woods participants established the World Bank, the need to lend money to third-world nations was foremost in their minds.

Correct AnswerverifiedShow Answer

It is most appropriate for a firm to contract out manufacturing when:

Correct AnswerverifiedShow Answer

Critics of floating exchange rates claim that trade deficits are determined by the:

Correct AnswerverifiedShow Answer

All countries were to fix the value of their currency in terms of gold but were not required to exchange their currencies for gold, according to the 1944:

Correct AnswerverifiedShow Answer

Which of the following observations is true of the Bretton Woods agreement?

Correct AnswerverifiedShow Answer

Which of the following is a common underlying macroeconomic cause of financial crises?

Correct AnswerverifiedShow Answer

Which of the following refers to the institutional arrangements that govern exchange rates?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The architects of the Bretton Woods agreement wanted to avoid high unemployment, so they built the fixed exchange rate system to be highly inflexible.

Correct AnswerverifiedShow Answer

Which of the following is a drawback of the currency board system?

Correct AnswerverifiedShow Answer

Many of the world's developing nations peg their currencies, primarily to the:

Correct AnswerverifiedShow Answer

Without currency devaluation, a country in "fundamental disequilibrium" would experience:

Correct AnswerverifiedShow Answer

How does a country that introduces a currency board make its commitment to converting its domestic currency on demand into another currency at a fixed exchange rate credible?

Correct AnswerverifiedShow Answer

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It is notable that in recent years the I...
View Answer

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