Global Business Today 5Th Canadian Edition By Charles W. L. Hill – Test Bank

Global Business Today 5Th Canadian Edition By Charles W. L. Hill – Test Bank

Chapter 10

The Global Monetary System

Multiple Choice Questions

1. According to the opening case on Iceland, the IMF did what around 2010? A. invoked austerity measures B. gave Iceland a $10 billion loan C. restructured the economy to reduce government debt D. brought about a change in regime E. none of these answers is correct Accessibility: Keyboard Navigation Difficulty: Medium 2. The world’s four major trading currencies are all free to float against each other. They include all of these except A. the British pound. B. the Japanese yen. C. the Spanish peso. D. the U.S. dollar. E. the European Euro. Accessibility: Keyboard Navigation Difficulty: Medium Topic: 10-01 Introduction   3. Institutional arrangements that countries adopt to govern exchange rates refers to what? A. floating interest rate B. international exchange rate C. fixed inflation rate D. dirty float E. international monetary system Accessibility: Keyboard Navigation Difficulty: Medium Topic: 10-01 Introduction 4. A currency value that is fixed relative to a reference currency is called what? A. fixed exchange rate B. dirty-float system C. floating exchange rate D. banking exchange rate E. pegged exchange rate Accessibility: Keyboard Navigation Difficulty: Hard Topic: 10-01 Introduction 5. The Bretton Woods conferences occurred in ______________ and established the basic framework for the post-World War II international monetary system. A. 1944 B. 1959 C. 1968 D. 1988 E. 1999 Accessibility: Keyboard Navigation Difficulty: Medium Topic: 10-01 Introduction   6. The Bretton Woods system called for _______________ exchange rates against the U.S. dollar. A. variable B. floating C. fixed D. fluctuating E. market Accessibility: Keyboard Navigation Difficulty: Easy Topic: 10-01 Introduction 7. Under the exchange rate system established by the Bretton Woods agreement, the value of most currencies in terms of ______________ was fixed for long periods and was allowed to change only under a specific set of circumstances. A. British pound B. Japanese yen C. U.S. dollars D. Chinese Renminbi E. European Euro Accessibility: Keyboard Navigation Difficulty: Medium Topic: 10-01 Introduction 8. The Bretton Woods conference created two major international institutions. These are what? A. the International Monetary Fund and the World Bank B. the World Trade Organization and the United Nations C. the World Currency Exchange and the World Bank D. the Bretton Woods Monetary Fund and the World Trade Organization E. the European Bank of Reconstruction and Development and the World Trade Organization Accessibility: Keyboard Navigation Difficulty: Medium Topic: 10-01 Introduction   9. The Bretton Woods system of fixed exchange rates ________________. A. has continued to be in force since it was adopted B. collapsed in 1973 C. collapsed shortly after it was adopted D. collapsed shortly after it was adopted, but has been reinstated and is in effect today E. collapsed because of the Jamaica Agreement Accessibility: Keyboard Navigation Difficulty: Medium Topic: 10-01 Introduction 10. As stipulated by the Bretton Woods conference, the goal of the International Monetary Fund was to: A. maintain order in the international monetary system B. establish a world currency C. promote development D. set interest rates in members nations E. establish economic guidelines for countries Accessibility: Keyboard Navigation Difficulty: Medium Topic: 10-01 Introduction 11. The acronym IMF stands for: A. International Monopoly Function B. Interval Monetary Fluctuations C. Interagency Monetary Function D. International Monetary Fund E. International Monetary Formation Accessibility: Keyboard Navigation Difficulty: Easy Topic: 10-01 Introduction   12. As stipulated by the Bretton Woods conference, the goal of the World Bank was to _____. A. maintain order in the international monetary system B. promote FDI in developing countries C. set interest rates in member states D. establish a world currency E. promote economic development Accessibility: Keyboard Navigation Difficulty: Medium Topic: 10-01 Introduction 13. The Bretton Woods system of fixed exchange rates collapsed in 1973. Since then the many of the world’s countries have operated with a A. mixed system. B. random monetary system. C. regulated standard system. D. monitored spot market. E. managed-float system. Accessibility: Keyboard Navigation Difficulty: Medium Topic: 10-01 Introduction 14. The gold standard has it origin in what? A. the use of the word “gold” to refer to items of value B. the use of gold coins as a medium of exchange C. the inherent value placed on gold stones as objects of beauty and value D. the use of gold bricks as a medium of exchange between countries E. the resistance of gold to depreciation in value Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-01 Describe the historical development of the modern global monetary system. Topic: 10-02 The Gold Standard   15. Pegging currencies to gold and guaranteeing convertibility is known as what? A. gold standard B. federal reserve C. industrial revolution D. balance-of-trade equilibrium E. Bretton-Woods Agreement Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 10-01 Describe the historical development of the modern global monetary system. Topic: 10-03 Mechanics of the Gold Standard 16. By 1880, most of the world’s major trading nations, including Great Britain, Germany, Japan, and the United States, had adopted the A. diamond standard. B. gold standard. C. federal reserve standard. D. platinum standard. E. fixed exchange rate system. Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-01 Describe the historical development of the modern global monetary system. Topic: 10-03 Mechanics of the Gold Standard 17. The great strength claimed for the gold standard was that it contained a powerful mechanism for simultaneously achieving a(n) _______________ for all countries. A. balance-of-trade equilibrium B. economic stability C. interest rate parity D. equal tariff levels E. currency convertibility Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-01 Describe the historical development of the modern global monetary system. Topic: 10-04 Strength of the Gold Standard   18. The gold standard worked reasonably well until when? A. the 1870s B. the 1890s C. World War I D. World War II E. 1973 Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 10-01 Describe the historical development of the modern global monetary system. Topic: 10-05 The Period Between the Wars: 1918-1939 19. The gold standard was temporarily abandoned by Canada in what year? A. 1870 B. 1889 C. 1914 D. 1924 E. 1934 Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-01 Describe the historical development of the modern global monetary system. Topic: 10-05 The Period Between the Wars: 1918-1939 20. The United States returned to the gold standard in what year? A. 1870 B. 1919 C. 1925 D. 1932 E. 1934 Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-01 Describe the historical development of the modern global monetary system. Topic: 10-05 The Period Between the Wars: 1918-1939   21. Most countries abandoned convertibility and the gold standard in 1931 because: A. there was a sharp decline in the amount of gold mined B. the Bretton Woods Agreement was signed C. of the cycle of devaluations resulting from the Great Depression D. of the collapse of the Weimar Republic and the rise of Germany E. of the preference for a managed float system Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-01 Describe the historical development of the modern global monetary system. Topic: 10-05 The Period Between the Wars: 1918-1939 22. In 1944, the dollar remained convertible into gold at _________ per ounce. A. $22 B. $29 C. $35 D. $37 E. $40 Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-01 Describe the historical development of the modern global monetary system. Topic: 10-05 The Period Between the Wars: 1918-1939 23. One of the changes that was a result of Canada’s return to the gold standard in 1926 was that A. chartered banks could no longer hold gold in their reserves. B. the price of gold was allowed to fluctuate according to demand and supply. C. gold mining was made a monopoly of the government. D. the Canadian dollar was devalued to reflect the price of gold. E. currency provided by the chartered banks lost its status as legal tender. Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-01 Describe the historical development of the modern global monetary system. Topic: 10-05 The Period Between the Wars: 1918-1939   24. The gold standard broke down in the _______________ as countries engaged in competitive devaluations. A. 1910s B. 1920s C. 1930s D. 1950s E. 1970s Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-01 Describe the historical development of the modern global monetary system. Topic: 10-05 The Period Between the Wars: 1918-1939 25. The result of Canada’s suspension of the gold standard was A. the end of the gold standard. B. a trade surplus because of the lower value of the Canadian dollar. C. the final end of mercantilism. D. the raising of trade and convertibility restrictions. E. a collapse in the confidence in the Canadian monetary system. Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-01 Describe the historical development of the modern global monetary system. Topic: 10-05 The Period Between the Wars: 1918-1939 26. In 1944, at the height of World War II, representatives from 44 countries met at _______________ to design a new international monetary system. A. Richmond, Virginia B. San Francisco, California C. Bretton Woods, New Hampshire D. Morris Plains, New Jersey E. Yalta, USSR Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-06 The Bretton Woods System   27. The major problem with the _______________ was that no multinational institution could stop countries from engaging in competitive devaluations. A. metal standard B. federal reserve standard C. premium standard D. gold standard E. global trade system Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-06 The Bretton Woods System 28. The Bretton Woods agreement called for what? A. variable exchange rates B. fixed exchange rates C. freely floating exchange rates D. a set of “managed” floating exchange rates E. currency boards Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-06 The Bretton Woods System 29. The Bretton Woods system of fixed exchange rates was established in 1944. The central currency of this system was what? A. French Franc B. Chinese Renminbi C. U.S. Dollar D. British Pound E. Swiss Franc Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-06 The Bretton Woods System   30. The Bretton Woods agreement called for a system of fixed exchange rates that would be policed by the ________________. A. World Bank B. United Nations C. League of Nations D. International Monetary Fund E. United States Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-06 The Bretton Woods System 31. Under the Bretton Woods system, which currency served as the base currency? A. Japanese yen B. British pound C. French franc D. U.S. dollar E. Swiss Franc Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-06 The Bretton Woods System 32. The IMF Articles of Agreement were heavily influenced by all of the following except A. the worldwide financial boom. B. competitive devaluations. C. trade wars. D. high unemployment. E. hyperinflation. Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-07 The Role of the IMF   33. A fixed exchange rate regime imposes discipline in two ways: (1) the need to maintain a fixed exchange rate puts a brake on competitive devaluations and brings stability to the world trade environment and (2) a fixed exchange rate regime imposes what? A. social discipline on countries, thereby increasing the standard of living B. economic discipline on countries, thereby increasing gross national product C. political discipline on countries, thereby curtailing global opportunism D. monetary discipline on countries, thereby curtailing price inflation E. currency stability, thereby curtailing trade wars Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-07 The Role of the IMF 34. Monetary discipline was a central objective of Bretton Woods, and a rigid policy of fixed exchange rates was _______________. A. put into force B. seen as too inflexible C. tied to gold D. tied to inflation E. tied to monetary supply Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-07 The Role of the IMF 35. Fixed exchange rates are seen as a mechanism for achieving the following two objectives A. controlling inflation and economic discipline. B. controlling unemployment and political discipline. C. controlling economic stability and increasing gross national product. D. controlling political stability and economic discipline. E. controlling currency speculation and trade imbalances. Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-07 The Role of the IMF   36. The ______________ were/was heavily influenced by the world-wide financial collapse, competitive devaluations, trade wars, and high employment. A. World Bank Development Program B. IMF export assistance C. fixed parities D. adjustable parities E. IMF Articles of Agreement Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-07 The Role of the IMF 37. ______________ are seen as a mechanism for controlling inflation and imposing economic discipline on countries. A. Fixed exchange rates B. Floating exchange rates C. Global exchange rates D. Transnational exchange rates E. Managed float systems Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-07 The Role of the IMF 38. Two major features of the International Monetary Fund (IMF) Articles of Agreement fostered flexibility within the monetary system. These features included IMF lending facilities and: A. IMF export assistance B. fixed parities C. a return to the gold standard D. adjustable parities E. externally imposed monetary discipline Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-07 The Role of the IMF   39. Although monetary discipline was a central objective of the Bretton Woods agreement, it was recognized that a _______________ of fixed exchange rates would be too inflexible. A. relaxed policy B. rigid policy C. lending policy D. balanced policy E. managed policy Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-07 The Role of the IMF 40. The International Bank for Reconstruction and Development (IBRD) is the official name for the: A. World Trade Organization B. World Bank C. International Monetary Fund D. Global-Regional Bank E. International Development Bank Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-08 The Role of the World Bank 41. In the context of the global monetary system, the IBRD stands for the _______________. A. International Bank for Rents and Deposits B. International Bureau for Restraining Devaluations C. International Bank for Reconstruction and Development D. International Bureau for Research and Development E. International Bank Depository for Reconciliation of Deposits Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-08 The Role of the World Bank   42. The initial mission of the World Bank was to __________________ A. help repay the allies war debt. B. help small businesses establish export operations. C. provide letters of credit on behalf of first-time exporters. D. provide development loans for developing countries in Asia. E. help finance the re-building of Europe’s economy by providing low-interest loans. Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-08 The Role of the World Bank 43. Under the _______________, money is raised through bond sales in the international capital market. A. International Monetary Fund B. World Bank C. World Trade Organization D. International Bank for Reconstruction and Development E. International Development Agency Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-08 The Role of the World Bank 44. Helping finance the building of Europe’s economy after World War II by providing low-interest loans was the initial mission of the ______________. A. World Trade Organization B. World Bank C. European National Bank D. International Monetary Fund E. United States Treasury Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-08 The Role of the World Bank   45. Which of the following statements accurately depicts what happened to the Bretton Woods system of fixed exchange rates? A. The system never got off the ground, and collapsed in the late 1940s. B. The system worked well for about a decade, then collapsed in the mid-1950s. C. The system began to show signs of strain in the 1960s, and finally collapsed in 1973. D. The system remained in place until the early 1990s when an international conference was convened in Finland to develop a managed float system. E. The system was replaced by the Jamaica Agreement at the urging of the U.S. Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-09 The Collapse of the Fixed Exchange Rate System 46. The Bretton Woods system of fixed exchange rates collapsed in 1973, and since then most countries have practiced a _________________. A. stepwise fixed rate exchange system B. more rigid and enforceable fixed exchange rate system C. float system D. combination of managed float systems and fixed exchange rate systems E. pegged exchange rate system Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-10 The Floating Exchange Rate Regime 47. The ______________ exchange rate regime that followed the collapse of the fixed exchange rate system was formalized in January 1976 when IMF members met in Jamaica and agreed to the rules for the international system that are in place today. A. floating B. quasi-fixed C. open D. closed E. managed Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-10 The Floating Exchange Rate Regime   48. The three main elements of the Jamaica Agreement were: A. the International Monetary Fund was established; gold was abandoned as a reserve asset; and floating rates were declared unacceptable B. floating rates were declared acceptable; gold was abandoned as a reserve asset; and total annual IMF quotas were increased to $41 billion C. floating rates were declared unacceptable; the International Monetary Fund was abolished; and the World Bank was established D. fixed rates were declared acceptable, gold was accepted as a reserve asset; and the total annual IMF quotas were increased to $41 billion E. all of these answers are correct Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-11 The Jamaica Agreement 49. Which of the following was not one of the main elements of the Jamaica Agreement? A. The establishment of the International Monetary Fund B. Floating rates were declared acceptable C. Total annual IMF quotas were increased to $41 billion D. Gold was abandoned as a reserve asset E. Gold was returned to its members at current market rates Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-11 The Jamaica Agreement   50. During the oil crisis in 1979, following the oil crisis of 1971 when the price of oil quadrupled, the Organization of Petroleum Exporting Countries increased the price of oil by ______. A. 2 times B. 2.5 times C. 3 times D. 4 times E. 5 times Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-12 Exchange Rates Since 1973 51. The partial collapse of the European Monetary System occurred in A. 1980. B. 2001. C. 1992. D. 1998. E. 1973. Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-12 Exchange Rates Since 1973 52. Under a floating exchange rate regime, market forces have produced what? A. a near fixed U.S. dollar exchange rate B. a predictable U.S. dollar exchange rate C. a stable U.S. dollar exchange rate D. a volatile U.S. dollar exchange rate E. a controlled dynamic U.S. dollar exchange rate Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: 10-14 The Case for Floating Exchange Rates   53. The case for floating exchange rates has two main elements. These are: A. monetary policy autonomy and automatic trade balance adjustments B. sporadic trade balance adjustments and monetary policy autonomy C. the impracticality of the gold standard and monetary policy control D. monetary policy control and sporadic trade balance adjustments E. monetary policy interdependence and autonomic trade balance adjustments Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: 10-14 The Case for Floating Exchange Rates 54. Floating exchange rates are determined by what? A. market forces B. the IMF C. the World Bank D. an international commission on exchange rate parity E. national banks Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 10-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: 10-14 The Case for Floating Exchange Rates 55. It is argued that a _______________ exchange rate regime gives countries monetary policy autonomy. A. restricted B. forward C. fixed D. floating E. managed float Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: 10-15 The Case for Fixed Exchange Rates   56. Under a ______________ exchange rate regime, 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. A. forward B. fixed C. narrow D. floating E. managed float Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: 10-15 The Case for Fixed Exchange Rates 57. ______________ also adds to the uncertainty surrounding future currency movements that characterizes floating exchange rate regimes. A. The impracticality of the gold standard B. Monetary policy autonomy C. Trade balance Adjustments D. Speculation E. Market forces Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: 10-15 The Case for Fixed Exchange Rates 58. The case for fixed exchange rates rests on arguments about monetary discipline, speculation, the lack of connection between the trade balance and exchange rates, and _______________. A. automatic trade balance adjustments B. uncertainty C. the impracticality of the gold standard D. monetary policy autonomy E. the importance of the U.S. dollar Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: 10-15 The Case for Fixed Exchange Rates   59. “Free float” exchange rates are determined by _____________. A. the IMF B. market forces C. governments D. the World Bank E. national banks Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regions. Topic: 10-17 Exchange Rate Regimes in Practice 60. Under a pegged exchange rate regime, a country will peg the value of its currency to _______ A. an index of world currencies maintained by the World Bank. B. that of a major currency. C. an index of “peer nation” currencies. D. an index of its historic currency rates. E. the index of its major trading partners’ currencies. Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regions. Topic: 10-18 Pegged Exchange Rates 61. Pegged exchange rates are popular among many of the world’s ___________. A. industrialized nations B. largest nations C. smaller nations D. communist nations E. developing nations Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regions. Topic: 10-18 Pegged Exchange Rates   62. There is some evidence that adopting a pegged exchange rate regime _________________. A. reduces unemployment in a country B. moderates inflationary pressure in a country C. increases global GNP D. decreases global GNP E. increases GNI growth within the country Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regions. Topic: 10-18 Pegged Exchange Rates 63. An IMF study concluded that countries with pegged exchange rate regimes had an average annual inflation rate of ______________, compared with 14 percent for intermediate regimes and 16 percent for floating regimes. A. 4 percent B. 18 percent C. 14 percent D. 8 percent E. 0.8 percent Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regions. Topic: 10-18 Pegged Exchange Rates 64. A country that introduces a(n) ______________ commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate. A. currency board B. monetary review commission C. exchange rate review commission D. certificate board E. IMF pegged rate regime Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regions. Topic: 10-19 Currency Boards   65. A(n) ______________ is a governing body that manages the value of a currency by holding foreign currency reserves equal to the amount of domestic currency issued at a fixed exchange rate. A. exchange rate committee B. currency board C. certificate board D. monetary review commission E. national bank currency committee Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regions. Topic: 10-19 Currency Boards 66. One of the problems associated with currency boards is that if local inflation rates remain higher than the inflation rate in the country to which the currency is pegged than ______. A. the country’s currency can come under attack by speculators B. the country’s interest rates can only be set with the agreement of the country to which the currency is pegged C. the country’s monetary demand may increase faster than monetary supply D. the country’s trade surplus may increase causing trading partners to apply tariffs and other trade barriers E. the country’s currency may become over valued and reduce the country’s international competitiveness Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regions. Topic: 10-19 Currency Boards   67. Over the past 30 years, the activities of the IMF have ______________. A. expanded B. declined C. expanded in developed countries but declined in underdeveloped countries D. expanded in underdeveloped countries but declined in developed countries E. been increasingly criticized as being an instrument of the U.S. government Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: 10-20 Crisis Management by the IMF 68. A ___________ occurs when a speculative attack on the exchange value of a currency results in a sharp depreciation in the value of the currency or forces authorities to expend large volumes of international currency reserved and sharply increase interest rates to defend the prevailing exchange rate. A. currency crisis B. monetary disruption C. banking crisis D. currency disruption E. liquidity crisis Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: 10-21 Financial Crises in the Post-Bretton Woods Era 69. A ____________ refers to a situation in which a loss of confidence in the banking system leads to a run on banks, as individuals and companies withdraw their deposits. A. banking crisis B. currency crisis C. federal reserve crisis D. monetary crisis E. debt crisis Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: 10-21 Financial Crises in the Post-Bretton Woods Era   70. A ___________ occurs when a country cannot service its foreign debt obligations. A. banking crisis B. currency crisis C. monetary crisis D. foreign debt crisis E. liquidity crisis Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: 10-21 Financial Crises in the Post-Bretton Woods Era 71. Which of the following is NOT among the main crises that have been of particular significance for the IMF? A. loans to Latvia between 2008-2010 B. the U.S. mortgage crisis of 2008-2010 C. loans to Greece between 2008-1010 D. loans to Ireland between 2008-2010 E. the Asian crisis of 1997 Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: 10-21 Financial Crises in the Post-Bretton Woods Era 72. The financial crisis that erupted across ___________ during the fall of 1997 has emerged as the biggest challenge the IMF has had to deal with. A. Eastern Europe B. Southeast Asia C. Central America D. South America E. the mid-east Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: 10-21 Financial Crises in the Post-Bretton Woods Era True / False Questions   73. The international monetary system is the system of bank payments used around the world. FALSE Accessibility: Keyboard Navigation Difficulty: Easy Topic: 10-01 Introduction 74. When the foreign exchange market determines the relative value of a currency, it is said that the country is adhering to a pegged exchange rate. FALSE Accessibility: Keyboard Navigation Difficulty: Medium Topic: 10-01 Introduction 75. The Bretton Woods system called for fixed exchange rates against the U.S. dollar. TRUE Accessibility: Keyboard Navigation Difficulty: Easy Topic: 10-01 Introduction 76. The agreement reached at Bretton Woods established two multinational institutions: the World Trade Organization and the World Bank. FALSE Accessibility: Keyboard Navigation Difficulty: Medium Topic: 10-01 Introduction   77. Since the Bretton Woods system of floating exchange rates collapsed in 1973, the world has operated with a fixed exchange rate system. FALSE Accessibility: Keyboard Navigation Difficulty: Medium Topic: 10-01 Introduction 78. The gold standard is the practice of pegging currencies to gold and guaranteeing convertibility. TRUE Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 10-01 Describe the historical development of the modern global monetary system. Topic: 10-03 Mechanics of the Gold Standard 79. The great strength claimed for the gold standard was that it contained a powerful mechanism for simultaneously achieving balance-of-trade equilibrium by all countries. TRUE Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-01 Describe the historical development of the modern global monetary system. Topic: 10-04 Strength of the Gold Standard 80. The Bretton Woods agreement resulted in a commitment not to use devaluation as a weapon of competitive trade policy. TRUE Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-06 The Bretton Woods System   81. Although monetary discipline was a central objective, the Bretton Woods agreement recognized that a rigid policy of fixed exchange rates would be too inflexible. TRUE Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-06 The Bretton Woods System 82. The task of the IMF was to maintain order in the international monetary system, as stipulated by the Bretton Woods agreement. TRUE Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-07 The Role of the IMF 83. Two features of the IMF helped build in limited flexibility: IMF lending facilities and adjustable parities. TRUE Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-07 The Role of the IMF 84. The official name of the World Bank is the International Bank for Reconstruction and Development. TRUE Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-08 The Role of the World Bank   85. Most economists trace the break-up of the fixed exchange rate system to the U.S. macroeconomic policy package of 1965-1968. TRUE Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-09 The Collapse of the Fixed Exchange Rate System 86. Revising the IMF’s Articles of Agreement to reflect the new reality of floating exchange rates was the purpose of the Jamaica meeting. TRUE Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-11 The Jamaica Agreement 87. After Jamaica, the IMF continued its role of helping countries cope with macroeconomic and exchange rate problems, albeit within the context of a radically different exchange rate regime. TRUE Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-11 The Jamaica Agreement 88. Market forces have produced a volatile dollar exchange under a floating exchange rate regime. TRUE Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-12 Exchange Rates Since 1973   89. The Oil crisis of 1979 is one reason for the volatility of exchange rates since March of 1973. TRUE Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-12 Exchange Rates Since 1973 90. Monetary policy autonomy and automatic trade balance adjustments are the two main elements of the case for fixed exchange rates. FALSE Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: 10-14 The Case for Floating Exchange Rates 91. It is argued that a floating exchange rate regime gives countries monetary policy autonomy. TRUE Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: 10-14 The Case for Floating Exchange Rates 92. Removal of the obligation to maintain exchange rate parity restores monetary control to a government is the argument of advocates of a floating exchange rate regime. TRUE Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: 10-14 The Case for Floating Exchange Rates   93. The case for fixed exchange rates rests on arguments about monetary discipline, speculation, uncertainty, and the lack of connection between the trade balance and exchange rates. TRUE Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: 10-15 The Case for Fixed Exchange Rates 94. Critics of a floating exchange rate regime argue that speculation causes stability in exchange rates. FALSE Accessibility: Keyboard Navigation Difficulty: Hard Learning Objective: 10-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: 10-15 The Case for Fixed Exchange Rates 95. The IMF has kept its policies prescriptions and approaches consistent since it was formed. FALSE Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: 10-20 Crisis Management by the IMF 96. A banking crisis occurs when there is a speculative attack on the exchange value of a currency. FALSE Accessibility: Keyboard Navigation Difficulty: Easy Learning Objective: 10-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: 10-21 Financial Crises in the Post-Bretton Woods Era   97. Moral hazard occurs when people behave recklessly because they know they will be saved if things go wrong. TRUE Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: 10-22 Evaluating the IMF’s Policy Prescriptions Short Answer Questions 98. You are the Chief Financial Officer of a company that operates in almost two dozen countries around the world: in Europe, Central and South America, and Asia. You manufacture your product (which is used in the auto industry) in many countries, and also sell them in the same countries as well as others: all in the regions described above. You also import items from many countries, for use in your manufacturing process. How do exchange rates affect individual international businesses? Do international businesses like stable rates or volatile rates? Explain your answer. The volatility of the present system of floating exchange rates is a problem for international businesses. Exchange rates are difficult to predict, and introduce a major source of “uncertainty” in international trade that is unnerving for many businesses. The majority of international businesses would probably prefer stability in exchange rates. Exchange rate fluctuations introduce uncertainty into the international business process, which is uncertain enough to begin with. Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: 10-13 Fixed versus Floating Exchange Rates Topic: 10-16 Who Is Right?   99. What is the difference between a floating exchange rate and a managed or dirty float system? In a free floating system there is no governmental intervention in the market, while in a managed or dirty float system governments intervene to influence the value of their currency. Accessibility: Keyboard Navigation Difficulty: Easy Topic: 10-01 Introduction 100. Describe what happened at the 1944 Bretton Woods conference. Are the monetary principles established by the Bretton Woods conference still in effect today? In 1944, at the height of World War II, representatives from 44 countries met at Bretton Woods, New Hampshire, to design a new international monetary system. The purpose of the conference was to build an economic order that would facilitate postwar economic growth and cooperation. The primary initiatives resulted from the conference were: a) The establishment of the International Monetary Fund (IMF). b) The establishment of the World Bank. c) A call for the establishment of a set of fixed currency exchange rates that would be policed by the IMF. d) A commitment not to use devaluation as a weapon of competitive trade policy. The task of the IMF would be to maintain order in the international monetary system, and the World Bank was designed to promote general economic development. In regard to currency exchange rates, all countries were to fix the value of their currency in terms of gold but were not required to exchange their currencies for gold. Only the U.S. dollar remained convertible into gold-at a price of $35 per ounce. Each other country decided what it wanted its exchange rate to be vis-à-vis the dollar and then calculated the gold par value of its currency based on that selected dollar exchange rate. All participating countries agreed to try to maintain the value of their currency within 1 percent of the par value. Today, the IMF and the World Bank still play a role in the international monetary system. The system of fixed exchange rates established at Bretton Woods worked well until the late 1960s, when it began to show signs of strain. The system finally collapsed in 1973, and since then we have had a managed float system. Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-06 The Bretton Woods System   101. Describe the role of the World Bank in the international community. How does the World Bank contribute to the overall stability of the global monetary system? The World Bank was established by the 1944 Bretton Woods agreement. The official name for the World Bank is the International Bank for Reconstruction and Development (IBRD). The bank’s initial mission was to help finance the building of Europe’s war torn economy by providing low-interest loans. As it turned out, the role of the World Bank in Europe was overshadowed by the Marshall Plan, under which the U.S. lent money directly to European nations to help them rebuild in the aftermath of World War II. As a result, the bank turned its attention to lending money for development in Third World nations. Although the World Bank does not play a direct role in monetary policy, it contributes to the global money system by providing low interest loans to developing countries. These loans, which are used for such things as public-sector projects (i.e. power stations, roads, bridges, etc.), agricultural development, education, population control, and urban development, are intended to promote economic development and increase the standard of living in developing countries. As the result of some disappointment in regard to loaning money to countries that do not practice sound economy policy, the World Bank has recently devised a new type of loan. In addition to providing funds to support specific projects, the bank will now also provide loans for the government of a nation to use as it sees fit in return for promises on macroeconomic policy. Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: 10-08 The Role of the World Bank   102. Describe the difference between fixed and floating exchange rates. Which is better? Explain your answer. Under a fixed rate system the value of a currency is fixed (usually in terms of U.S. dollars) and is only allowed to change under a specific set of circumstances. The value of a fixed rate system is that it introduces monetary discipline (on a country level), discourages currency speculation, reduces uncertainty (in regard to future currency movements), and, according to the proponents of fixed rates, has little or no effect on trade balance adjustments. In contrast, under a floating rate system, currencies are allowed to float freely (in practice, the majority of floating rate systems are either managed in some way by government intervention or are pegged to another currency). The benefits of a floating rate system is that it gives countries monetary policy autonomy and, according to the proponents, provides a way for countries to correct trade deficits (i.e. an exchange rate depreciation should correct a trade balance by making a country’s exports cheaper and its imports more expensive). There is no right or wrong answer to this question-we simply don’t know which system is better. We do know that a fixed rate system modeled along the lines of the Bretton Woods system will not work. Conversely, advocates of a fixed rate system argue that speculation is a major disadvantage of floating rates. Perhaps a modified fixed rate system will produce the type of economic stability that will contribute to greater growth in international trade and investments. Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: 10-13 Fixed versus Floating Exchange Rates Topic: 10-16 Who Is Right? 103. What is a pegged exchange rate? How does it work? What is the advantage of a pegged exchange rate regime? Under a pegged exchange rate regime a country will peg the value of its currency to that of a major currency so that, for example, as the United States dollar rises in value, its own currency rises, too. Pegged exchange rates are popular among many of the world’s smaller nations. As with a full fixed exchange rate regime, the great virtue claimed for a pegged exchange rate regime is that it imposes monetary discipline on a country and leads to low inflation. Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regions. Topic: 10-18 Pegged Exchange Rates   104. Explain what a moral hazard is, and how it is used as a criticism of IMF policies. This refers to the theory that if policy makers know that the IMF will always provide their country with a safety net to protect or mitigate their bad decisions they are less likely to pursue prudent economic policies. In other words they are more likely to take a chance then they would if the IMF was not ready to bail them out. Accessibility: Keyboard Navigation Difficulty: Medium Learning Objective: 10-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: 10-22 Evaluating the IMF’s Policy Prescriptions