Question 1

The value of U.S. dollar increased between 1980 and 1985

Accepted Answer

A)   despite running a growing trade deficit.
B)   despite exporting substantially more than it imported.
C)   because of a growing trade surplus.
D)   because the country's status as a world financial leader was becoming apparent.

Question 2

A country's trade balance is in surplus when

Accepted Answer

A)   its exports are more than its imports.
B)   it experiences negative inflation.
C)   its exports equal the imports.
D)   the prices of commodities are low in the country.

Question 3

After the agreement reached at Bretton Wood, the dollar was the only currency that could be convertible into gold.

Accepted Answer

A) True 
 B)False

Question 4

Advocates of a ________ argue that removal of the obligation to maintain exchange rate parity would restore monetary control to a government.

Accepted Answer

A)   fixed exchange rate regime
B)   dirty-float system
C)   floating exchange rate regime
D)   pegged exchange rate regime

Question 5

Implementing a fixed exchange rate regime increases the price inflation in countries.

Accepted Answer

A) True 
 B)False

Question 6

Market forces have produced a stable dollar exchange rate under a floating exchange rate regime.

Accepted Answer

A) True 
 B)False

Question 7

Contracting out manufacturing allows companies to reduce economic exposure because

Accepted Answer

A)   multiple suppliers attract subsidies from government.
B)   it reduces the pressure on them to maintain a trade surplus.
C)   it allows companies to shift suppliers from country to country.
D)   quality issues are insignificant when manufacturing is contracted to others.

Question 8

Moral hazard arises when people behave recklessly because

Accepted Answer

A)   of the restrictions that exist in a country's monetary policy.
B)   of the restrictions the IMF has imposed on them.
C)   they know they will be saved if things go wrong.
D)   they face financial difficulties arising out of external factors.

Question 9

The monetary autonomy argument holds that

Accepted Answer

A)   each country should be allowed to choose its own inflation rate.
B)   inflation is beneficial to a country's economy and growth.
C)   inflation is detrimental to a country's economy and growth.
D)   countries should restrict inflation based on the global standards.

Question 10

Under a ________ exchange rate regime, a country will attach the value of its currency to that of a major currency.

Accepted Answer

A)   managed-float
B)   pegged
C)   free-float
D)   currency board

Question 11

Discuss the arguments that favor a floating exchange rate system against a fixed exchange rate system.

Accepted Answer

There are three main elements in the cas...

Question 12

Which of the following is the exchange rate policy where the government intervenes in the exchange rate system only in a limited way?

Accepted Answer

A)   managed-float
B)   fixed peg
C)   free-float
D)   currency board

Question 13

With the help of an example, explain how balance-of-trade equilibrium is maintained under the gold standard.

Accepted Answer

A country is in balance-of-trade equilib...

Question 14

A currency crisis occurs due to

Accepted Answer

A)   the loss of confidence in a country's banking system.
B)   heavy foreign debt obligations.
C)   high levels of trade deficit.
D)   a speculative attack on the exchange value.

Question 15

What is the international monetary system? What are the major trading currencies?

Accepted Answer

The international monetary system refers...

Question 16

Moral hazard arises when people behave recklessly without regard for the consequences.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following arguments strengthen the idea of floating exchange rates?

Accepted Answer

A)   External agencies should not interfere in the monetary policies of a country.
B)   Trade deficits can be corrected through changes in exchange rates.
C)   Changes in exchange rates will not impact the trade balance in a country.
D)   Governments should act in ways to minimize the uncertainty in monetary markets.

Question 18

The rise in the value of the dollar between 1985 and 1988

Accepted Answer

A)   gave U.S. goods a competitive advantage over others.
B)   made imports relatively cheap.
C)   gave U.S. goods a comparative advantage over others.
D)   made imports expensive.

Question 19

Which of the following arguments is in favor of floating exchange rates?

Accepted Answer

A)   A country's ability to expand or contract its money supply should be limited by the need to maintain exchange rate parity.
B)   Maintaining balance of trade equilibrium is not in the best interest of a country.
C)   Countries can isolate themselves from uncertainties when they trade using a mutually agreed on exchange rate.
D)   Governments can restore monetary control by removing the obligation to maintain exchange rate parity.

Question 20

Which of the following is a factor that initiated the collapse of the fixed exchange rate system?

Accepted Answer

A)   worsening of Great Britain's balance of trade
B)   recession in third world countries
C)   price inflation in Europe
D)   worsening of U.S. foreign trade position

Exam 11: The International Monetary System

Which of the following arguments is in favor of floating exchange rates?

Correct AnswerverifiedShow Answer

Implementing a fixed exchange rate regime increases the price inflation in countries.

Correct AnswerverifiedShow Answer

Contracting out manufacturing allows companies to reduce economic exposure because

Correct AnswerverifiedShow Answer

With the help of an example, explain how balance-of-trade equilibrium is maintained under the gold standard.

Correct AnswerverifiedA country is in balance-of-trade equilib...View AnswerShow Answer

Under a ________ exchange rate regime, a country will attach the value of its currency to that of a major currency.

Correct AnswerverifiedShow Answer

Which of the following is a factor that initiated the collapse of the fixed exchange rate system?

Correct AnswerverifiedShow Answer

Which of the following arguments strengthen the idea of floating exchange rates?

Correct AnswerverifiedShow Answer

Market forces have produced a stable dollar exchange rate under a floating exchange rate regime.

Correct AnswerverifiedShow Answer

A country's trade balance is in surplus when

Correct AnswerverifiedShow Answer

Moral hazard arises when people behave recklessly because

Correct AnswerverifiedShow Answer

The monetary autonomy argument holds that

Correct AnswerverifiedShow Answer

Which of the following is the exchange rate policy where the government intervenes in the exchange rate system only in a limited way?

Correct AnswerverifiedShow Answer

After the agreement reached at Bretton Wood, the dollar was the only currency that could be convertible into gold.

Correct AnswerverifiedShow Answer

A currency crisis occurs due to

Correct AnswerverifiedShow Answer

The value of U.S. dollar increased between 1980 and 1985

Correct AnswerverifiedShow Answer

The rise in the value of the dollar between 1985 and 1988

Correct AnswerverifiedShow Answer

What is the international monetary system? What are the major trading currencies?

Correct AnswerverifiedThe international monetary system refers...View AnswerShow Answer

Discuss the arguments that favor a floating exchange rate system against a fixed exchange rate system.

Correct AnswerverifiedThere are three main elements in the cas...View AnswerShow Answer

Advocates of a ________ argue that removal of the obligation to maintain exchange rate parity would restore monetary control to a government.

Correct AnswerverifiedShow Answer

Moral hazard arises when people behave recklessly without regard for the consequences.

Correct AnswerverifiedShow Answer

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A country is in balance-of-trade equilib...
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The international monetary system refers...
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There are three main elements in the cas...
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Correct Answer
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Correct Answer
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