Question 1

In the context of the 1997 Asian crisis, how did the International Monetary Fund's "one-size-fits-all" approach to macroeconomic policy affect South Korea?

Accepted Answer

A)  It led to a decrease in the interest rates of short-term loans.
B)  It made it difficult for companies to service their excessive short-term debt obligations.
C)  It decreased the probability of widespread corporate defaults.
D)  South Korea failed to recover from its financial crises.
E)  South Korea was forced to increase restrictions on foreign direct investment.F) A) and E)
G) A) and B)

Question 2

Under the Bretton Woods system, if a country developed a permanent deficit in its balance of trade that could not be corrected by domestic policy, this would require the:

Accepted Answer

A)  country to import more than it exports.
B)  country to make its exports more expensive.
C)  International Monetary Fund to agree to a currency devaluation.
D)  government to expand monetary supply in the economy.
E)  government to undertake activities that led to exchange rate appreciation.F) A) and B)
G) B) and C)

Question 3

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

Accepted Answer

When the foreign exchange market determi...

Question 4

Which term was not defined in the International Monetary Fund's Articles of Agreement but was intended to apply to countries that had suffered permanent adverse shifts in the demand for their products?

Accepted Answer

A)  Competitive disadvantage
B)  Capital flight
C)  Fundamental disequilibrium
D)  Break-even point
E)  Diseconomies of scaleF) B) and E)
G) C) and D)

Question 5

Adopting which kind of an exchange rate regime moderates inflationary pressures in a country?

Accepted Answer

A)  Nominal
B)  Pegged
C)  Pure "free float"
D)  Clean float
E)  RealF) All of the above
G) A) and B)

Question 6

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 7

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 8

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 B)
G) A) and C)

Question 9

Describe the gold standard and a balance-of-trade equilibrium.

Accepted Answer

Pegging currencies to gold and guarantee...

Question 10

If more dollars are needed to buy an ounce of gold than before, the implication is that the dollar is worth more.

Accepted Answer

A) True 
 B)False

Question 11

According to the Bretton Woods agreement, if a currency became too weak to defend, a devaluation of up to 10 percent would be allowed without any formal approval by the International Monetary Fund.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following refers to a system under which the exchange rate for converting one currency into another is continuously adjusted depending on the laws of supply and demand?

Accepted Answer

A)  Fixed exchange rate
B)  Floating exchange rate
C)  Forward exchange rate
D)  Pegged exchange rate
E)  Nominal exchange rateF) A) and E)
G) A) and C)

Question 13

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) D) and E)

Question 14

Which of the following is one of the reasons for the rapid rise in the value of the dollar between 1980 and 1985 despite a large trade deficit?

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 StatesF) A) and D)
G) A) and C)

Question 15

Which of the following is a great strength of the gold standard?

Accepted Answer

A)  It helped establish the dollar as a predominant vehicle currency.
B)  It helped governments raise foreign exchange reserves thereby increasing economic stability.
C)  It contained a powerful mechanism for achieving balance-of-trade equilibrium by all countries.
D)  It helped reduce inflation to near-zero levels in all countries engaged in international trade.
E)  It helped to establish a common currency across the globe to fund international trade.F) A) and B)
G) A) and C)

Question 16

Which of the following was an announcement made by U.S. President Nixon to enable the devaluation of the dollar during the increase in inflation in 1971 in the United States?

Accepted Answer

A)  The IMF member countries would adopt the gold standard to fix exchange rates.
B)  The United States would no longer support the World Bank.
C)  A new 15 percent tax would be charged on U.S. exports.
D)  The dollar would no longer be convertible into gold.
E)  German deutsche marks would be the new reference currency.F) C) and D)
G) B) and E)

Question 17

In comparison to a floating exchange rate regime, a fixed exchange rate system is characterized by:

Accepted Answer

A)  smoother trade balance adjustments.
B)  increased destabilizing effects of exchange rate speculation.
C)  greater autonomy in terms of monetary policy.
D)  higher monetary discipline.
E)  greater exchange rate uncertainty and volatility.F) None of the above
G) A) and C)

Question 18

According to the agreement reached between the International Monetary Fund and the South Korean government in 1997, in return for funding, the South Koreans were required to:

Accepted Answer

A)  adopt communist ideologies.
B)  reduce their imports by enforcing restrictive import licensing.
C)  open their economy to greater foreign competition.
D)  oppose the ideologies of the World Trade Organization.
E)  engage in competitive currency devaluation.F) A) and C)
G) D) and E)

Question 19

Since March 1973, currency exchange rates have become less volatile and more predictable than they were between 1945 and 1973.

Accepted Answer

A) True 
 B)False

Question 20

A country is said to be in balance-of-trade equilibrium when the income its residents earn from exports is greater than the money its residents pay to other countries for imports.

Accepted Answer

A) True 
 B)False

Exam 11: The International Monetary System

According to the agreement reached between the International Monetary Fund and the South Korean government in 1997, in return for funding, the South Koreans were required to:

Correct AnswerverifiedShow Answer

Describe the gold standard and a balance-of-trade equilibrium.

Correct AnswerverifiedPegging currencies to gold and guarantee...View AnswerShow Answer

If more dollars are needed to buy an ounce of gold than before, the implication is that the dollar is worth more.

Correct AnswerverifiedShow Answer

Which of the following was an announcement made by U.S. President Nixon to enable the devaluation of the dollar during the increase in inflation in 1971 in the United States?

Correct AnswerverifiedShow Answer

Which term was not defined in the International Monetary Fund's Articles of Agreement but was intended to apply to countries that had suffered permanent adverse shifts in the demand for their products?

Correct AnswerverifiedShow Answer

Under the Bretton Woods system, if a country developed a permanent deficit in its balance of trade that could not be corrected by domestic policy, this would require the:

Correct AnswerverifiedShow Answer

Which of the following refers to a system under which the exchange rate for converting one currency into another is continuously adjusted depending on the laws of supply and demand?

Correct AnswerverifiedShow Answer

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

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

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

Correct AnswerverifiedShow Answer

In comparison to a floating exchange rate regime, a fixed exchange rate system is characterized by:

Correct AnswerverifiedShow Answer

Since March 1973, currency exchange rates have become less volatile and more predictable than they were between 1945 and 1973.

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

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

Correct AnswerverifiedShow Answer

Which of the following is one of the reasons for the rapid rise in the value of the dollar between 1980 and 1985 despite a large trade deficit?

Correct AnswerverifiedShow Answer

According to the Bretton Woods agreement, if a currency became too weak to defend, a devaluation of up to 10 percent would be allowed without any formal approval by the International Monetary Fund.

Correct AnswerverifiedShow Answer

Adopting which kind of an exchange rate regime moderates inflationary pressures in a country?

Correct AnswerverifiedShow Answer

A country is said to be in balance-of-trade equilibrium when the income its residents earn from exports is greater than the money its residents pay to other countries for imports.

Correct AnswerverifiedShow Answer

Which of the following is a great strength of the gold standard?

Correct AnswerverifiedShow Answer

In the context of the 1997 Asian crisis, how did the International Monetary Fund's "one-size-fits-all" approach to macroeconomic policy affect South Korea?

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

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Pegging currencies to gold and guarantee...
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When the foreign exchange market determi...
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