Question 1

Which of the following was a reason that led to the collapse of the gold standard in 1939?

Accepted Answer

A)  difficulty and complexity in using the gold standard to determine the exchange rate
B)  agreement by governments to convert paper currency into gold on demand at a fixed rate
C)  cycle of competitive currency devaluations by various countries
D)  expansion in the volume of international trade in the wake of the Industrial Revolution
E)  inability of the gold standard to act as a mechanism for achieving balance-of-trade equilibrium by all countriesF) B) and D)
G) B) and E)

Question 2

All International Monetary Fund loan packages come with conditions attached.Elaborate.

Accepted Answer

By 2013,the International Monetary Fund ...

Question 3

A pegged exchange rate means the value of the currency is fixed relative to a reference currency,and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate.

Accepted Answer

A) True 
 B)False

Question 4

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

Question 5

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

Question 6

Given a common gold standard,the value of any currency in units of any other currency (the exchange rate)was easy to determine.

Accepted Answer

A) True 
 B)False

Question 7

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

Question 8

A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate.

Accepted Answer

A) True 
 B)False

Question 9

Recently,the Republic of Manoonistan moved to an exchange rate system under which its exchange rate is allowed to fluctuate against other currencies within a target zone.The Republic of Manoonistan's exchange rate system is called a(n)

Accepted Answer

A)  free float.
B)  fixed peg.
C)  adjustable peg.
D)  pure float.
E)  capital float.F) D) and E)
G) All of the above C

Question 10

In a floating exchange rate,the relative value of a currency

Accepted Answer

A)  is more predictable and less volatile.
B)  is determined by market forces.
C)  changes infrequently only under a specific set of circumstances.
D)  is set against other currencies at some mutually agreed on exchange rate.
E)  does not depend on the free play of market forces.F) B) and C)
G) A) and C)

Question 11

The People's Democratic Republic of South Mantuka wants to commit itself to converting its domestic currency on demand into another currency at a fixed exchange rate.What should the People's Democratic Republic of South Mantuka introduce?

Accepted Answer

A)  free-float exchange rate system
B)  clean-float exchange rate system
C)  pure-float exchange rate system
D)  currency board
E)  gold standardF) B) and D)
G) C) and D)

Question 12

Jade,a working professional,began driving rashly ever since she got her car insured against damage.She believed that the insurance claim would cover her in case of any accidents.What does Jade's behavior display?

Accepted Answer

A)  cognitive dissonance
B)  conflict of interest
C)  systemic risk
D)  moral hazard
E)  tragedy of the commonsF) A) and D)
G) A) and C)

Question 13

The disadvantage of a pegged exchange rate regime is that it aggravates inflationary pressures in a country.

Accepted Answer

A) True 
 B)False

Question 14

Jarinia,a leading global economic power,lets the foreign exchange market determine the relative value of its currency,called the junid.Jarnia's exchange rate regime is called a _____ exchange rate.

Accepted Answer

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

Question 15

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 16

It can be very difficult for a small country to maintain a peg against another currency if capital is flowing out of the country and foreign exchange traders are speculating against the currency.

Accepted Answer

A) True 
 B)False  True

Question 17

According to the critics of the International Monetary Fund (IMF) ,how should the problem of moral hazard exhibited by banks be resolved?

Accepted Answer

A)  The IMF should use a "one-size-fits-all" approach to macroeconomic policy.
B)  The IMF should establish a mechanism for accountability.
C)  The IMF should free all banks from the obligation of financial reporting.
D)  The banks should be forced to pay the price for their rash lending policies.
E)  The IMF should bail out the banks whose loans gave rise to financial crises.F) None of the above
G) B) and D)

Question 18

Which of the following observations about the International Monetary Fund (IMF) is true?

Accepted Answer

A)  The IMF can force countries to adopt the policies required to correct economic mismanagement.
B)  Internal political problems can affect a government's commitment to taking corrective action in return for an IMF loan.
C)  In recent years,the IMF has begun to make its policies more tight and inflexible.
D)  In response to the global financial crisis of 2008-2009,the IMF began to adopt a "one-size-fits-all" approach to macroeconomic policy.
E)  In recent years,the IMF has begun to urge countries to oppose fiscal stimulus and monetary easing.F) C) and D)
G) A) and E)

Question 19

The value of Surnum's,a developing economy,currency is fixed relative to the U.S.dollar.The exchange rate between the Surnum currency and other currencies is determined by the dollar exchange rate.Surnum's exchange rate is

Accepted Answer

A)  flexible.
B)  pegged.
C)  real.
D)  dirty-float.
E)  floating.F) D) and E)
G) B) and C) B

Question 20

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

Exam 11: The International Monetary System

Which of the following was a reason that led to the collapse of the gold standard in 1939?

Correct AnswerverifiedShow Answer

All International Monetary Fund loan packages come with conditions attached.Elaborate.

Correct AnswerverifiedBy 2013,the International Monetary Fund ...View AnswerShow Answer

A pegged exchange rate means the value of the currency is fixed relative to a reference currency,and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Given a common gold standard,the value of any currency in units of any other currency (the exchange rate)was easy to determine.

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

A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate.

Correct AnswerverifiedShow Answer

Recently,the Republic of Manoonistan moved to an exchange rate system under which its exchange rate is allowed to fluctuate against other currencies within a target zone.The Republic of Manoonistan's exchange rate system is called a(n)

Correct AnswerverifiedC

In a floating exchange rate,the relative value of a currency

Correct AnswerverifiedShow Answer

The People's Democratic Republic of South Mantuka wants to commit itself to converting its domestic currency on demand into another currency at a fixed exchange rate.What should the People's Democratic Republic of South Mantuka introduce?

Correct AnswerverifiedShow Answer

Jade,a working professional,began driving rashly ever since she got her car insured against damage.She believed that the insurance claim would cover her in case of any accidents.What does Jade's behavior display?

Correct AnswerverifiedShow Answer

The disadvantage of a pegged exchange rate regime is that it aggravates inflationary pressures in a country.

Correct AnswerverifiedShow Answer

Jarinia,a leading global economic power,lets the foreign exchange market determine the relative value of its currency,called the junid.Jarnia's exchange rate regime is called a _____ exchange rate.

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

It can be very difficult for a small country to maintain a peg against another currency if capital is flowing out of the country and foreign exchange traders are speculating against the currency.

Correct AnswerverifiedTrue

According to the critics of the International Monetary Fund (IMF) ,how should the problem of moral hazard exhibited by banks be resolved?

Correct AnswerverifiedShow Answer

Which of the following observations about the International Monetary Fund (IMF) is true?

Correct AnswerverifiedShow Answer

The value of Surnum's,a developing economy,currency is fixed relative to the U.S.dollar.The exchange rate between the Surnum currency and other currencies is determined by the dollar exchange rate.Surnum's exchange rate is

Correct AnswerverifiedB

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

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By 2013,the International Monetary Fund ...
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C

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True

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B

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