Question 1

A ________ exists in a country when the income its residents earn from exports is equal to the money its residents pay to other countries for imports.

Accepted Answer

A)   currency crisis
B)   balance-of-trade equilibrium
C)   balance-of-payments deficit
D)   balance-of-trade surplus
E)   fiscal deficitF) None of the above
G) A) and B)

Question 2

Which situation poses the greatest problem for international businesses in the long run?

Accepted Answer

A)   using exchange rate instruments like the forward market and swaps
B)   volatility of the global exchange rate regime
C)   anti-inflationary monetary policies
D)   maintaining strategic flexibility by dispersing production to different locations
E)   a policy of reduction in government spendingF) A) and E)
G) C) and D) B

Question 3

Two nations that are part of a recently formed common market have an exchange rate system where the values of their currencies are set against each other at a mutually agreed on exchange rate. This type of exchange rate system is called

Accepted Answer

A)   clean float.
B)   floating.
C)   fixed.
D)   dirty-float.
E)   pegged.F) A) and E)
G) A) and B)

Question 4

Some IMF economists argue that higher inflation rates might be good if the consequence is greater growth in aggregate demand.

Accepted Answer

A) True 
 B)False

Question 5

A country in South America is adversely affected by trade deficits and the government wants to move to a floating exchange rate system to help adjust trade imbalances. However, a political group 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) B) and D)
G) None of the above

Question 6

The International Development Association of the World Bank only provides loans to

Accepted Answer

A)   entrepreneurial companies.
B)   the poorest nations.
C)   European countries.
D)   Westernized nations.
E)   start-up companies.F) A) and B)
G) A) and E)

Question 7

The architects of the Bretton Woods agreement wanted to avoid high unemployment, so they built the fixed exchange rate system to be highly inflexible.

Accepted Answer

A) True 
 B)False

Question 8

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 E)
G) A) and C)

Question 9

All countries were to fix the value of their currency in terms of gold but were not required to exchange their currencies for gold, according to the 1944

Accepted Answer

A)   Bretton Woods agreement.
B)   Washington Consensus.
C)   World Bank treaty.
D)   Group of Five treaty.
E)   United Nations agreement.F) A) and B)
G) A) and E)

Question 10

The fall in the value of the U.S. dollar between 1985 and 1988 was caused by

Accepted Answer

A)   economic growth in the developed countries of Europe.
B)   a fall in prices of exported U.S. goods.
C)   a trade surplus in the United States during the previous years.
D)   a combination of government intervention and market forces.
E)   the protectionism measures adopted by European countries.F) A) and E)
G) A) and D)

Question 11

The institutional arrangements that govern exchange rates are called the

Accepted Answer

A)   generally accepted accounting principles.
B)   general agreement on tariffs and trade.
C)   international monetary system.
D)   general agreement on trade in services.
E)   financial management information system.F) B) and E)
G) B) and D)

Question 12

One unit of a peso in a Latin American country was defined as equivalent to 12 grains of "fine" (pure)  gold, while one unit of its neighboring countries currency, a dollar, was defined as equivalent to 18 grains of "fine" (pure)  gold. Using the gold par value concept (with 480 grains in an ounce) , the exchange rate for converting the peso to the dollar is

Accepted Answer

A)   1.5 peso = 1 dollar.
B)   1 peso = 1 dollar.
C)   3 peso = 2 dollar.
D)   1 peso = 1.5 dollar.
E)   2 peso = 1 dollar.F) B) and D)
G) D) and E)

Question 13

A potential downfall of the Bretton Woods system was that it would not work if

Accepted Answer

A)   the currency of choice, the U.S. dollar, was under speculative attack.
B)   only one form of currency was used as the basis for exchange.
C)   gold was valued higher than the dollar.
D)   at least ten nations failed to agree to the system.
E)   services were not included in the agreement.F) B) and E)
G) All of the above

Question 14

One aspect of the International Bank for Reconstruction and Development (IBRD)  scheme of the World Bank is that

Accepted Answer

A)   the resources to fund IBRD loans are raised through subscriptions from wealthy members.
B)   the interest rate charged by the World Bank is higher than commercial banks' market rate.
C)   the 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 C)
G) B) and E)

Question 15

A banking crisis occurs when there is a speculative attack on the exchange value of currency.

Accepted Answer

A) True 
 B)False  False

Question 16

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) A) and D)
G) A) and E)

Question 17

The initial focus for the World Bank was to help

Accepted Answer

A)   boost the money supply in North America.
B)   reconstruct the war-torn economies of Europe.
C)   assess the economic infrastructure of communist nations.
D)   revive the gold standard system.
E)   stimulate trade between Cuba and the United States.F) A) and B)
G) All of the above

Question 18

One way a company can build strategic flexibility is by contracting out manufacturing processes around the globe.

Accepted Answer

A) True 
 B)False

Question 19

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 them to developed countries.
C)   A pool of gold and currencies contributed by its members provides the resources for 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) A) and B)
G) B) and C)

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) A) and B)
G) None of the above D

Exam 11: The International Monetary System

A ________ exists in a country when the income its residents earn from exports is equal to the money its residents pay to other countries for imports.

Correct Answer
verified

Which situation poses the greatest problem for international businesses in the long run?

Correct Answer
verified
B

Two nations that are part of a recently formed common market have an exchange rate system where the values of their currencies are set against each other at a mutually agreed on exchange rate. This type of exchange rate system is called

Correct Answer
verified

Some IMF economists argue that higher inflation rates might be good if the consequence is greater growth in aggregate demand.

Correct Answer
verified

Correct Answer
verified

The International Development Association of the World Bank only provides loans to

Correct Answer
verified

The architects of the Bretton Woods agreement wanted to avoid high unemployment, so they built the fixed exchange rate system to be highly inflexible.

Correct Answer
verified

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

Correct Answer
verified

All countries were to fix the value of their currency in terms of gold but were not required to exchange their currencies for gold, according to the 1944

Correct Answer
verified

The fall in the value of the U.S. dollar between 1985 and 1988 was caused by

Correct Answer
verified

The institutional arrangements that govern exchange rates are called the

Correct Answer
verified

Correct Answer
verified

A potential downfall of the Bretton Woods system was that it would not work if

Correct Answer
verified

One aspect of the International Bank for Reconstruction and Development (IBRD) scheme of the World Bank is that

Correct Answer
verified

A banking crisis occurs when there is a speculative attack on the exchange value of currency.

Correct Answer
verified
False

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

Correct Answer
verified

The initial focus for the World Bank was to help

Correct Answer
verified

One way a company can build strategic flexibility is by contracting out manufacturing processes around the globe.

Correct Answer
verified

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

Correct Answer
verified

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 Answer
verified
D

Exam 11: The International Monetary System

A ________ exists in a country when the income its residents earn from exports is equal to the money its residents pay to other countries for imports.

Correct AnswerverifiedShow Answer

Which situation poses the greatest problem for international businesses in the long run?

Correct AnswerverifiedB

Two nations that are part of a recently formed common market have an exchange rate system where the values of their currencies are set against each other at a mutually agreed on exchange rate. This type of exchange rate system is called

Correct AnswerverifiedShow Answer

Some IMF economists argue that higher inflation rates might be good if the consequence is greater growth in aggregate demand.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The International Development Association of the World Bank only provides loans to

Correct AnswerverifiedShow Answer

The architects of the Bretton Woods agreement wanted to avoid high unemployment, so they built the fixed exchange rate system to be highly inflexible.

Correct AnswerverifiedShow 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

All countries were to fix the value of their currency in terms of gold but were not required to exchange their currencies for gold, according to the 1944

Correct AnswerverifiedShow Answer

The fall in the value of the U.S. dollar between 1985 and 1988 was caused by

Correct AnswerverifiedShow Answer

The institutional arrangements that govern exchange rates are called the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A potential downfall of the Bretton Woods system was that it would not work if

Correct AnswerverifiedShow Answer

One aspect of the International Bank for Reconstruction and Development (IBRD) scheme of the World Bank is that

Correct AnswerverifiedShow Answer

A banking crisis occurs when there is a speculative attack on the exchange value of currency.

Correct AnswerverifiedFalse

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

Correct AnswerverifiedShow Answer

The initial focus for the World Bank was to help

Correct AnswerverifiedShow Answer

One way a company can build strategic flexibility is by contracting out manufacturing processes around the globe.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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 AnswerverifiedD

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B

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False

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D