Question 1

Which of the following statements is true about financial crises?

Accepted Answer

A)   The elements of currency, banking, and debt crises do not present themselves simultaneously.
B)   A currency crisis forces authorities to hold large volumes of international currency reserves.
C)   A foreign debt crisis occurs when a country's foreign debt obligations in private-sector government debt cannot be serviced.
D)   A banking crisis occurs when individuals and companies increase their deposits due to increasing interest rates.
E)   The International Monetary Fund does not grant loans to countries that face the risks of financial crises.F) None of the above
G) C) and D)

Question 2

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 3

Which of the following was abandoned as per the Jamaica agreement of 1976?

Accepted Answer

A)   Floating exchange rate system
B)   U.S. dollar as the reference currency
C)   Gold as a reserve asset
D)   Membership to the International Monetary Fund
E)   Granting International Monetary Fund loans to less developed countriesF) C) and D)
G) A) and B)

Question 4

Which of the following statements is true about a currency board system?

Accepted Answer

A)   Under a strict currency board system, interest rates adjust automatically based on the supply and demand of domestic currency.
B)   To convert domestic currency on demand into another currency, a currency board takes grants from the International Monetary Fund.
C)   This system is a true fixed exchange rate regime, because the domestic currency is fixed against other currencies.
D)   A currency board can issue additional domestic currency even when there are no foreign exchange reserves to back it.
E)   A currency board authorizes the government to print money and set interest rates.F) A) and D)
G) B) and E)

Question 5

How does the International Monetary Fund (IMF) provide loans to deficit-laden countries?

Accepted Answer

A)   It prints the required currencies, thereby increasing money supply in those countries.
B)   It acts as a market, buying goods from these countries and selling it to developed countries.
C)   A pool of gold and currencies contributed by its members provides the resources for the lending operations.
D)   The World Bank lends the required amount to the IMF at a low interest rate.
E)   It collects money from those countries that wish to devaluate their currencies.F) C) and D)
G) B) and E)

Question 6

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...

Question 7

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

Accepted Answer

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

Question 8

Which of the following is a reason for the emergence of the gold standard?

Accepted Answer

A)   Expansion in the volume of international trade due to the Industrial Revolution
B)   Inability of governments to convert gold into paper currency on demand at a fixed rate
C)   Widening gap between the developed and the developing nations
D)   Failure of the Bretton Woods fixed exchange rate system
E)   Failure of the U.S. dollar to act as a reference currencyF) A) and C)
G) A) and D)

Question 9

Which of the following was the weakness of the Bretton Woods system?

Accepted Answer

A)   It could be wrecked by heavy borrowings from the World Bank and the International Monetary Fund.
B)   It could not work if the U.S. dollar was under speculative attack.
C)   The inflexibility of the system resulted in high unemployment.
D)   It forced fiscal and monetary discipline on participating nations.
E)   It allowed the countries to engage in competitive currency devaluations.F) B) and D)
G) C) and D)

Question 10

A country is said to be in _____ 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)   a banking crisis
E)   free trade areaF) None of the above
G) A) and E)

Question 11

The International Monetary Fund can force countries to adopt the policies required to correct economic mismanagement.

Accepted Answer

A) True 
 B)False

Question 12

The collapse of the fixed exchange rate system has been traced to the:

Accepted Answer

A)   U.S. macroeconomic policy package of 1965-1968.
B)   inflexibility of the fixed exchange rate system that led to high unemployment.
C)   Marshall Plan, under which the United States lent money heavily to European nations.
D)   failure of the International Monetary Fund to impose monetary discipline.
E)   increased taxes in the U.S. to finance its welfare programs.F) All of the above
G) C) and D)

Question 13

The major problem with the gold standard was that no multinational institution could stop countries from engaging in competitive devaluations.

Accepted Answer

A) True 
 B)False

Question 14

An aspect of the Bretton Woods agreement was a commitment not to use:

Accepted Answer

A)   the system of fixed exchange rates.
B)   devaluation as a weapon of competitive trade policy.
C)   gold as a measure to fix the value of currencies.
D)   funds from the International Monetary Fund and the World Bank.
E)   the U.S. dollar as a reference currency.F) C) and D)
G) B) and D)

Question 15

In January 1976,the _____ revised the International Monetary Fund's Articles of Agreement to reflect the new reality of floating exchange rates.

Accepted Answer

A)   Jamaica agreement
B)   Bretton Woods agreement
C)   Marshall Plan
D)   General agreement on Tariffs and Trade
E)   Plaza AccordF) B) and D)
G) B) and E)

Question 16

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) A) and B)
G) A) and C)

Question 17

Which of the following is true of the International Bank for Reconstruction and Development (IBRD) scheme of the World Bank?

Accepted Answer

A)   Resources to fund IBRD loans are raised through subscriptions from wealthy members.
B)   The interest rate charged by the World Bank is higher than the commercial banks' market rate.
C)   Borrowers have to pay the bank's cost of funds plus a margin for expenses.
D)   The bank avoids offering low-interest loans to risky customers whose credit rating is often poor.
E)   It was established to approve currency devaluations that are beyond 10 percent.F) A) and E)
G) B) and D)

Question 18

Briefly describe the Bretton Woods agreement of 1944.

Accepted Answer

In 1944,at the height of World War II,re...

Question 19

Differentiate between a floating exchange rate and a pegged exchange rate.

Accepted Answer

When the foreign exchange market determi...

Question 20

_____ 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 B)
G) A) and C)

Exam 11: The International Monetary System

Briefly describe the Bretton Woods agreement of 1944.

Correct AnswerverifiedIn 1944,at the height of World War II,re...View AnswerShow Answer

In January 1976,the _____ revised the International Monetary Fund's Articles of Agreement to reflect the new reality of floating exchange rates.

Correct AnswerverifiedShow Answer

Differentiate between a floating exchange rate and a pegged exchange rate.

Correct AnswerverifiedWhen the foreign exchange market determi...View AnswerShow Answer

_____ 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

The major problem with the gold standard was that no multinational institution could stop countries from engaging in competitive devaluations.

Correct AnswerverifiedShow Answer

Which of the following statements is true about financial crises?

Correct AnswerverifiedShow Answer

Which of the following was abandoned as per the Jamaica agreement of 1976?

Correct AnswerverifiedShow Answer

Which of the following statements is true about a currency board system?

Correct AnswerverifiedShow Answer

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

Which of the following is true of the International Bank for Reconstruction and Development (IBRD) scheme of the World Bank?

Correct AnswerverifiedShow Answer

How does the International Monetary Fund (IMF) provide loans to deficit-laden countries?

Correct AnswerverifiedShow Answer

A country is said to be in _____ when the income its residents earn from exports is equal to the money its residents pay to other countries for imports.

Correct AnswerverifiedShow Answer

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

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

The collapse of the fixed exchange rate system has been traced to the:

Correct AnswerverifiedShow Answer

The International Monetary Fund can force countries to adopt the policies required to correct economic mismanagement.

Correct AnswerverifiedShow Answer

Which of the following was the weakness of the Bretton Woods system?

Correct AnswerverifiedShow Answer

Which of the following is an argument for a floating 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

An aspect of the Bretton Woods agreement was a commitment not to use:

Correct AnswerverifiedShow Answer

Which of the following is a reason for the emergence of the gold standard?

Correct AnswerverifiedShow Answer

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In 1944,at the height of World War II,re...
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When the foreign exchange market determi...
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It is notable that in recent years the I...
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The volatility of the current global exc...
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