Question 1

Under a floating exchange rate system,a country's ability to expand or contract its money supply as it sees fit is limited by the need to maintain exchange rate parity.

Accepted Answer

A) True 
 B)False

Question 2

In response to the global financial crisis of 2008-2009,the International Monetary Fund began to

Accepted Answer

A)  exercise tight controls on fiscal policy of the borrowing countries.
B)  encourage activities that prevent high inflation rates.
C)  display inflexibility in policy responses.
D)  urge countries to adopt policies that included fiscal stimulus and monetary easing.
E)  adopt a "one-size-fits-all" approach to macroeconomic policy.F) A) and B)
G) C) and D)

Question 3

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 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) A) and B)
G) B) and D)

Question 4

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

Question 5

According to the noted economist Jeffrey Sachs,the International Monetary Fund should

Accepted Answer

A)  not be accountable to anyone as it is a powerful institution.
B)  bail out banks that have rash lending policies.
C)  have a "one-size-fits-all" approach to macroeconomic policy.
D)  keep its operations open to greater outside scrutiny.
E)  lend only to countries with safe credit ratings.F) D) and E)
G) A) and D)

Question 6

Which of the following explains the rise of the dollar against most major currencies in the late 1990s,even though the United States was still running a significant balance-of-payments deficit?

Accepted Answer

A)  reduced government intervention in the foreign exchange market
B)  increased foreign investments in U.S.financial assets
C)  low real interest rates in the United States compared to the rest of the world
D)  increased exports as opposed to imports
E)  increased communism in the United StatesF) A) and C)
G) A) and B)

Question 7

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

Question 8

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 D)
G) A) and C)

Question 9

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 C)
G) A) and E)

Question 10

Which of the following statements is true about the various exchange rate systems?

Accepted Answer

A)  In a fixed exchange rate system,the value of a currency is adjusted according to the day to day market forces.
B)  In a clean float,the central bank of a country will intervene in the foreign exchange market to try to maintain the value of its currency.
C)  After the collapse of the Bretton Woods system of floating exchange rates in 1973,the world has operated with a fixed exchange rate system.
D)  Under the Bretton Woods system,currency devaluations over 10 percent were allowed only with the approval of the IMF.
E)  In dirty float,the exchange rate between a currency and other currencies is relatively fixed against a reference currency exchange rate.F) A) and E)
G) A) and D)

Question 11

The forward exchange market is an accurate predictor of future exchange rates.

Accepted Answer

A) True 
 B)False

Question 12

The country of Ninook is adversely affected by trade deficits and so the government wants to move to a floating exchange rate system.The government believes that moving to a floating rate would help adjust trade imbalances.However,a political group in Ninook is opposing this.As critics of floating exchange rates,they 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) None of the above
G) A) and D)

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.

Accepted Answer

A) True 
 B)False

Question 14

Under a floating exchange rate regime,market forces have produced a volatile dollar exchange rate.

Accepted Answer

A) True 
 B)False

Question 15

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 16

In the 1930s,countries were devaluing their currencies at will in order to boost exports,thus shattering confidence in the

Accepted Answer

A)  floating exchange rate system.
B)  gold standard system.
C)  fixed exchange system.
D)  Bretton Woods system.
E)  managed-float system.F) A) and E)
G) A) and D)

Question 17

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

Question 18

Which of the following statements is true about the current monetary system?

Accepted Answer

A)  Use of instruments such as the forward market and swaps has decreased since the breakdown of the Bretton Woods system.
B)  The present monetary system lacks the volatile movements in exchange rates that existed in a fixed exchange rate system.
C)  The current foreign exchange market works exactly as depicted in the purchasing power parity theory.
D)  Instruments such as the forward market and swaps increase the foreign exchange risk a company faces.
E)  A combination of government intervention and speculative activity drives the current foreign exchange market.F) All of the above
G) C) and D)

Question 19

Under a pegged exchange rate regime,a country will peg the value of its currency to that of a major currency,so that if the reference currency rises in value,its own currency rises too.

Accepted Answer

A) True 
 B)False

Question 20

The activities of the International Monetary Fund have declined after the collapse of the Bretton Woods system in 1973.

Accepted Answer

A) True 
 B)False

Exam 11: The International Monetary System

The forward exchange market is an accurate predictor of future exchange rates.

Correct Answer
verified

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 Answer
verified

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

Correct Answer
verified

Which of the following statements is true about the current monetary system?

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.

Correct Answer
verified

One drawback of the currency board system is

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Which of the following explains the rise of the dollar against most major currencies in the late 1990s,even though the United States was still running a significant balance-of-payments deficit?

Correct Answer
verified

In response to the global financial crisis of 2008-2009,the International Monetary Fund began to

Correct Answer
verified

Under a floating exchange rate regime,market forces have produced a volatile dollar exchange rate.

Correct Answer
verified

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

Correct Answer
verified

Which of the following statements is true about the various exchange rate systems?

Correct Answer
verified

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

Correct Answer
verified

The activities of the International Monetary Fund have declined after the collapse of the Bretton Woods system in 1973.

Correct Answer
verified

Under a floating exchange rate system,a country's ability to expand or contract its money supply as it sees fit is limited by the need to maintain exchange rate parity.

Correct Answer
verified

Under a pegged exchange rate regime,a country will peg the value of its currency to that of a major currency,so that if the reference currency rises in value,its own currency rises too.

Correct Answer
verified

According to the noted economist Jeffrey Sachs,the International Monetary Fund should

Correct Answer
verified

In the 1930s,countries were devaluing their currencies at will in order to boost exports,thus shattering confidence in the

Correct Answer
verified

Exam 11: The International Monetary System

The forward exchange market is an accurate predictor of future exchange rates.

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

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

Correct AnswerverifiedShow Answer

Which of the following statements is true about the current monetary system?

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.

Correct AnswerverifiedShow Answer

One drawback of the currency board system is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Which of the following explains the rise of the dollar against most major currencies in the late 1990s,even though the United States was still running a significant balance-of-payments deficit?

Correct AnswerverifiedShow Answer

In response to the global financial crisis of 2008-2009,the International Monetary Fund began to

Correct AnswerverifiedShow Answer

Under a floating exchange rate regime,market forces have produced a volatile dollar exchange rate.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements is true about the various exchange rate systems?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The activities of the International Monetary Fund have declined after the collapse of the Bretton Woods system in 1973.

Correct AnswerverifiedShow Answer

Under a floating exchange rate system,a country's ability to expand or contract its money supply as it sees fit is limited by the need to maintain exchange rate parity.

Correct AnswerverifiedShow Answer

Under a pegged exchange rate regime,a country will peg the value of its currency to that of a major currency,so that if the reference currency rises in value,its own currency rises too.

Correct AnswerverifiedShow Answer

According to the noted economist Jeffrey Sachs,the International Monetary Fund should

Correct AnswerverifiedShow Answer

In the 1930s,countries were devaluing their currencies at will in order to boost exports,thus shattering confidence in the

Correct AnswerverifiedShow Answer

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