Question 1

Explain what a moral hazard is,and how it is used as a criticism of IMF policies.

Accepted Answer

This refers to the theory that if policy...

Question 2

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?

Accepted Answer

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 warsF) All of the above
G) A) and B) D

Question 3

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?

Accepted Answer

The World Bank was established by the 19...

Question 4

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.

Accepted Answer

A) True 
 B)False

Question 5

It is argued that a _______________ exchange rate regime gives countries monetary policy autonomy.

Accepted Answer

A)   restricted
B)   forward
C)   fixed
D)   floating
E)   managed floatF) All of the above
G) B) and C)

Question 6

Pegging currencies to gold and guaranteeing convertibility is known as what?

Accepted Answer

A)   gold standard
B)   federal reserve
C)   industrial revolution
D)   balance-of-trade equilibrium
E)   Bretton-Woods AgreementF) A) and B)
G) C) and E)

Question 7

A ___________ occurs when a country cannot service its foreign debt obligations.

Accepted Answer

A)   banking crisis
B)   currency crisis
C)   monetary crisis
D)   foreign debt crisis
E)   liquidity crisisF) A) and C)
G) B) and E)

Question 8

Monetary policy autonomy and automatic trade balance adjustments are the two main elements of the case for fixed exchange rates.

Accepted Answer

A) True 
 B)False

Question 9

Floating exchange rates are determined by what?

Accepted Answer

A)   market forces
B)   the IMF
C)   the World Bank
D)   an international commission on exchange rate parity
E)   national banksF) C) and D)
G) A) and E)

Question 10

The world's four major trading currencies are all free to float against each other.They include all of these except

Accepted Answer

A)   the British pound.
B)   the Japanese yen.
C)   the Spanish peso.
D)   the U.S. dollar.
E)   the European Euro.F) C) and D)
G) B) and D)

Question 11

An increase in money supply without an increase in productivity typically leads to an increase in _________________.

Accepted Answer

A)   employment
B)   price inflation
C)   gross national product
D)   national standard of living
E)   price deflationF) B) and E)
G) B) and C) B

Question 12

According to our textbook,those in favour of floating exchange rates argue that floating rates __________.

Accepted Answer

A)   discourage speculation
B)   help confuse trade imbalances
C)   decrease uncertainty
D)   have no effect on trade imbalances
E)   help adjust trade imbalancesF) C) and D)
G) A) and E)

Question 13

Helping finance the building of Europe's economy after World War II by providing low-interest loans was the initial mission of the ______________.

Accepted Answer

A)   World Trade Organization
B)   World Bank
C)   European National Bank
D)   International Monetary Fund
E)   United States TreasuryF) C) and D)
G) C) and E)

Question 14

Under the Bretton Woods system,which currency served as the base currency?

Accepted Answer

A)   Japanese yen
B)   British pound
C)   French franc
D)   U.S. dollar
E)   Swiss FrancF) C) and E)
G) B) and E)

Question 15

Describe the difference between fixed and floating exchange rates.Which is better?

Accepted 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.

Question 16

Institutional arrangements that countries adopt to govern exchange rates refers to what?

Accepted Answer

A)   floating interest rate
B)   international exchange rate
C)   fixed inflation rate
D)   dirty float
E)   international monetary systemF) A) and B)
G) B) and D)

Question 17

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.

Accepted Answer

A) True 
 B)False

Question 18

Two features of the IMF helped build in limited flexibility: IMF lending facilities and adjustable parities.

Accepted Answer

A) True 
 B)False

Question 19

A currency value that is fixed relative to a reference currency is called what?

Accepted Answer

A)   fixed exchange rate
B)   dirty-float system
C)   floating exchange rate
D)   banking exchange rate
E)   pegged exchange rateF) B) and D)
G) C) and E)

Question 20

A country is said to be a balance-of-trade equilibrium when ___________________.

Accepted Answer

A)   the income that its residents earn from the export of manufactured goods equals the income that its residents earn from the export of services
B)   the income that its residents earn from exports is equal to the money that its residents pay for imports
C)   the income that its residents earn from exports in the current fiscal year is equal to the income that its residents earned from exports in the previous fiscal year
D)   the income that its residents earn from the export of raw materials is equal to the income that its residents earn from the export of manufactured goods
E)   the income that its residents earn from the export of goods and services is equal to the amount residents pay for foreign debtF) B) and D)
G) A) and D)

Exam 10: The Global Monetary System

Explain what a moral hazard is,and how it is used as a criticism of IMF policies.

Correct Answer
verified
This refers to the theory that if policy...
View Answer

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?

Correct Answer
verified
D

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?

Correct Answer
verified
The World Bank was established by the 19...
View Answer

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.

Correct Answer
verified

It is argued that a _______________ exchange rate regime gives countries monetary policy autonomy.

Correct Answer
verified

Pegging currencies to gold and guaranteeing convertibility is known as what?

Correct Answer
verified

A ___________ occurs when a country cannot service its foreign debt obligations.

Correct Answer
verified

Monetary policy autonomy and automatic trade balance adjustments are the two main elements of the case for fixed exchange rates.

Correct Answer
verified

Floating exchange rates are determined by what?

Correct Answer
verified

The world's four major trading currencies are all free to float against each other.They include all of these except

Correct Answer
verified

An increase in money supply without an increase in productivity typically leads to an increase in _________________.

Correct Answer
verified
B

According to our textbook,those in favour of floating exchange rates argue that floating rates __________.

Correct Answer
verified

Helping finance the building of Europe's economy after World War II by providing low-interest loans was the initial mission of the ______________.

Correct Answer
verified

Under the Bretton Woods system,which currency served as the base currency?

Correct Answer
verified

Describe the difference between fixed and floating exchange rates.Which is better?

Institutional arrangements that countries adopt to govern exchange rates refers to what?

Correct Answer
verified

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.

Correct Answer
verified

Two features of the IMF helped build in limited flexibility: IMF lending facilities and adjustable parities.

Correct Answer
verified

A currency value that is fixed relative to a reference currency is called what?

Correct Answer
verified

A country is said to be a balance-of-trade equilibrium when ___________________.

Correct Answer
verified

Exam 10: The Global Monetary System

Explain what a moral hazard is,and how it is used as a criticism of IMF policies.

Correct AnswerverifiedThis refers to the theory that if policy...View AnswerShow Answer

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?

Correct AnswerverifiedD

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?

Correct AnswerverifiedThe World Bank was established by the 19...View AnswerShow Answer

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.

Correct AnswerverifiedShow Answer

It is argued that a _______________ exchange rate regime gives countries monetary policy autonomy.

Correct AnswerverifiedShow Answer

Pegging currencies to gold and guaranteeing convertibility is known as what?

Correct AnswerverifiedShow Answer

A ___________ occurs when a country cannot service its foreign debt obligations.

Correct AnswerverifiedShow Answer

Monetary policy autonomy and automatic trade balance adjustments are the two main elements of the case for fixed exchange rates.

Correct AnswerverifiedShow Answer

Floating exchange rates are determined by what?

Correct AnswerverifiedShow Answer

The world's four major trading currencies are all free to float against each other.They include all of these except

Correct AnswerverifiedShow Answer

An increase in money supply without an increase in productivity typically leads to an increase in _________________.

Correct AnswerverifiedB

According to our textbook,those in favour of floating exchange rates argue that floating rates __________.

Correct AnswerverifiedShow Answer

Helping finance the building of Europe's economy after World War II by providing low-interest loans was the initial mission of the ______________.

Correct AnswerverifiedShow Answer

Under the Bretton Woods system,which currency served as the base currency?

Correct AnswerverifiedShow Answer

Describe the difference between fixed and floating exchange rates.Which is better?

Institutional arrangements that countries adopt to govern exchange rates refers to what?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Two features of the IMF helped build in limited flexibility: IMF lending facilities and adjustable parities.

Correct AnswerverifiedShow Answer

A currency value that is fixed relative to a reference currency is called what?

Correct AnswerverifiedShow Answer

A country is said to be a balance-of-trade equilibrium when ___________________.

Correct AnswerverifiedShow Answer

Correct Answer
verified
This refers to the theory that if policy...
View Answer

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D

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The World Bank was established by the 19...
View Answer

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B

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