Question 1

Under the Plaza Accord of 1985, the Group of Five major industrial countries concluded that it would be desirable if

Accepted Answer

A)   the countries returned to a system of fixed exchange rates.
B)   the participating members reverted to the gold standard.
C)   the United States adopted protectionism to improve its trade balance.
D)   most major currencies appreciated via the U.S. dollar.
E)   governments did not regulate the buying and selling of currency.F) A) and B)
G) B) and C)

Question 2

The foreign exchange market is sometimes referred to as a dirty-float system because

Accepted Answer

A)   of the frequency of government intervention.
B)   it doesn't account for developing economies.
C)   it allows for greater monetary discipline.
D)   it lacks spot exchange activity.
E)   it reflects a planned economy.F) B) and D)
G) A) and B)

Question 3

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) B) and D)
G) B) and E)

Question 4

Some countries let the foreign exchange market determine the relative value of its currency. This is called a ________ exchange rate.

Accepted Answer

A)   fixed
B)   floating
C)   forward
D)   pegged
E)   nominalF) D) and E)
G) B) and C)

Question 5

When the foreign exchange market determines the relative value of a currency, we say that the country is adhering to a pegged exchange rate regime.

Accepted Answer

A) True 
 B)False

Question 6

One reason for the rapid rise in the value of the dollar between 1980 and 1985 despite a large trade deficit was due to

Accepted Answer

A)   political stability in all other parts of the world.
B)   heavy capital outflows from the United States.
C)   low real interest rates in the United States.
D)   slow economic growth in the developed countries of Europe.
E)   increasing exports against decreasing imports in the United States.F) B) and E)
G) A) and B)

Question 7

One drawback of the currency board system is

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 noncompetitive.
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) A) and D)
G) C) and D)

Question 8

The currency of the United Arab Emirates is fixed relative to the U.S. dollar: this means that the exchange rate between the United Arab Emirates dirham and other currencies is determined by the dollar exchange rate. This is an example of a ________ exchange rate.

Accepted Answer

A)   flexible
B)   pegged
C)   real
D)   dirty-float
E)   floatingF) A) and B)
G) A) and C)

Question 9

How does increased foreign exchange risk affect business?

Accepted Answer

A)   This creates more opportunities for a business.
B)   This has no effect on a business.
C)   This has a negative effect on a business.
D)   This makes it easier for a business to obtain customers.
E)   This lowers the cost of doing business.F) A) and E)
G) A) and C)

Question 10

Which institution helped contain the global financial crisis of 2008-2009 by rescuing Iceland, Ireland, Greece, and Latvia?

Accepted Answer

A)   GATT
B)   United Nations
C)   World Bank
D)   IMF
E)   WTOF) All of the above
G) A) and C)

Question 11

Discuss some of the changes that have occurred in the International Monetary Fund in recent years.

Accepted Answer

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

Question 12

Following the global financial crisis in 2008-2009, the economy of Greece fell apart and has struggled to regain strength. What is one reason for the demise of the Greek economy?

Accepted Answer

A)   closing borders to trade in 2008
B)   new trade agreement with the United States
C)   a lack of entrepreneurial spirit
D)   adoption of the euro in 2001
E)   a dynamic trade program with FranceF) B) and C)
G) A) and B)

Question 13

As the only currency that could be converted into gold, the British pound occupied a central place in the fixed exchange rate system up until 1973.

Accepted Answer

A) True 
 B)False

Question 14

Under the gold standard, gold flows reduce the money supply in one nation when another nation experiences a trade surplus. The nation with a trade surplus has a swell in the money supply, which leads to price increases. At the same time, the nation with a reduction in the money supply will cause prices to fall. The lower prices create more demand for product from the nation with a reduction in the money supply, which leads to a

Accepted Answer

A)   balance-of-trade.
B)   facilitating payment.
C)   tragedy of the commons.
D)   floating exchange rate.
E)   planned economy.F) A) and C)
G) A) and D)

Question 15

One argument for a fixed exchange rate system is that

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) A) and E)
G) B) and E)

Question 16

Under the U.S. macroeconomic policy package of 1965-1968, President Lyndon Johnson backed an increase in U.S. government spending that was financed by

Accepted Answer

A)   the sale of gold reserves.
B)   borrowing from the International Monetary Fund.
C)   an increase in the money supply.
D)   an increase in taxes.
E)   selling bonds in the international capital market.F) B) and C)
G) A) and E)

Question 17

One implication of a currency crisis is that

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 C)

Question 18

SportLife Drinks, a multinational soft drink brand, has been facing huge economic losses due to unpredictable exchange rate movements. In order to gain considerable immunity against such currency fluctuations, SportLife Drinks 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)   avoid contracting out manufacturing.
E)   restrict its low-value-added manufacturing to one location.F) B) and E)
G) B) and C)

Question 19

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

Accepted Answer

When the foreign exchange market determi...

Question 20

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) A) and B)
G) B) and E)

Exam 11: The International Monetary System

One argument for a fixed exchange rate system is that

Correct Answer
verified

Which institution helped contain the global financial crisis of 2008-2009 by rescuing Iceland, Ireland, Greece, and Latvia?

Correct Answer
verified

One implication of a currency crisis is that

Correct Answer
verified

SportLife Drinks, a multinational soft drink brand, has been facing huge economic losses due to unpredictable exchange rate movements. In order to gain considerable immunity against such currency fluctuations, SportLife Drinks should

Correct Answer
verified

Under the Plaza Accord of 1985, the Group of Five major industrial countries concluded that it would be desirable if

Correct Answer
verified

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

Correct Answer
verified
When the foreign exchange market determi...
View Answer

Under the U.S. macroeconomic policy package of 1965-1968, President Lyndon Johnson backed an increase in U.S. government spending that was financed by

Correct Answer
verified

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

Correct Answer
verified

When the foreign exchange market determines the relative value of a currency, we say that the country is adhering to a pegged exchange rate regime.

Correct Answer
verified

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

Correct Answer
verified

How does increased foreign exchange risk affect business?

Correct Answer
verified

Some countries let the foreign exchange market determine the relative value of its currency. This is called a ________ exchange rate.

Correct Answer
verified

As the only currency that could be converted into gold, the British pound occupied a central place in the fixed exchange rate system up until 1973.

Correct Answer
verified

Discuss some of the changes that have occurred in the International Monetary Fund in recent years.

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

Correct Answer
verified

Following the global financial crisis in 2008-2009, the economy of Greece fell apart and has struggled to regain strength. What is one reason for the demise of the Greek economy?

Correct Answer
verified

The currency of the United Arab Emirates is fixed relative to the U.S. dollar: this means that the exchange rate between the United Arab Emirates dirham and other currencies is determined by the dollar exchange rate. This is an example of a ________ exchange rate.

Correct Answer
verified

One drawback of the currency board system is

Correct Answer
verified

The foreign exchange market is sometimes referred to as a dirty-float system because

Correct Answer
verified

One reason for the rapid rise in the value of the dollar between 1980 and 1985 despite a large trade deficit was due to

Correct Answer
verified

Exam 11: The International Monetary System

One argument for a fixed exchange rate system is that

Correct AnswerverifiedShow Answer

Which institution helped contain the global financial crisis of 2008-2009 by rescuing Iceland, Ireland, Greece, and Latvia?

Correct AnswerverifiedShow Answer

One implication of a currency crisis is that

Correct AnswerverifiedShow Answer

SportLife Drinks, a multinational soft drink brand, has been facing huge economic losses due to unpredictable exchange rate movements. In order to gain considerable immunity against such currency fluctuations, SportLife Drinks should

Correct AnswerverifiedShow Answer

Under the Plaza Accord of 1985, the Group of Five major industrial countries concluded that it would be desirable if

Correct AnswerverifiedShow Answer

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

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

Under the U.S. macroeconomic policy package of 1965-1968, President Lyndon Johnson backed an increase in U.S. government spending that was financed by

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the foreign exchange market determines the relative value of a currency, we say that the country is adhering to a pegged exchange rate regime.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

How does increased foreign exchange risk affect business?

Correct AnswerverifiedShow Answer

Some countries let the foreign exchange market determine the relative value of its currency. This is called a ________ exchange rate.

Correct AnswerverifiedShow Answer

As the only currency that could be converted into gold, the British pound occupied a central place in the fixed exchange rate system up until 1973.

Correct AnswerverifiedShow Answer

Discuss some of the changes that have occurred in the International Monetary Fund in recent years.

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

Correct AnswerverifiedShow Answer

Following the global financial crisis in 2008-2009, the economy of Greece fell apart and has struggled to regain strength. What is one reason for the demise of the Greek economy?

Correct AnswerverifiedShow Answer

The currency of the United Arab Emirates is fixed relative to the U.S. dollar: this means that the exchange rate between the United Arab Emirates dirham and other currencies is determined by the dollar exchange rate. This is an example of a ________ exchange rate.

Correct AnswerverifiedShow Answer

One drawback of the currency board system is

Correct AnswerverifiedShow Answer

The foreign exchange market is sometimes referred to as a dirty-float system because

Correct AnswerverifiedShow Answer

One reason for the rapid rise in the value of the dollar between 1980 and 1985 despite a large trade deficit was due to

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
When the foreign exchange market determi...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified