Question 1

By the early 1970s, gold had been phased out of the international monetary system.

Accepted Answer

A) True 
 B)False

Question 2

Under managed-floating exchange rates, market forces are allowed to determine exchange rates in the short run while central bank intervention is used to stabilize exchange rates in the long run.

Accepted Answer

A) True 
 B)False

Question 3

The Australian dollar is currently regarded is the key currency of the international monetary system.

Accepted Answer

A) True 
 B)False

Question 4

Under an adjustable-pegged system, market exchange rates are intended to be maintained within a narrow band around a currency's official exchange rate. In the case of fundamental disequilibrium, the currency can be devalued or revalued to promote current-account equilibrium.

Accepted Answer

A) True 
 B)False

Question 5

As a policy instrument, currency $\underline {   \text { devaluation } }$ may be controversial since it:

Accepted Answer

A)  Imposes hardships on the exporters of foreign countries 
B)  Imposes hardships on exporters of the devaluing country 
C)  Is generally followed by unemployment in the devaluing country 
D)  Is generally followed by price deflation in the devaluing country 
A)  Imposes hardships on the exporters of foreign countries 
B)  Imposes hardships on exporters of the devaluing country 
C)  Is generally followed by unemployment in the devaluing country 
D)  Is generally followed by price deflation in the devaluing country

Question 6

Under a floating exchange-rate system, if American exports $\underline { \text { decrease }   }$ and American imports rise, the value of the dollar will:

Accepted Answer

A)  Appreciate 
B)  Depreciate 
C)  Be officially revalued 
D)  Be officially devalued 
A)  Appreciate 
B)  Depreciate 
C)  Be officially revalued 
D)  Be officially devalued

Question 7

To defend a pegged exchange rate that $\underline { \text { overvalues }   }$its currency, a country could:

Accepted Answer

A)  Discourage commodity exports 
B)  Encourage commodity imports 
C)  Purchase its own currency in international markets 
D)  Sell its own currency in international markets 
A)  Discourage commodity exports 
B)  Encourage commodity imports 
C)  Purchase its own currency in international markets 
D)  Sell its own currency in international markets

Question 8

Table 15.1. The Market for Francs
 $\begin{array}{ccc}
\text { Quantity of}&\text { Dollar price}& \text { Quantity of}\
\text { francs demanded}&\text { of francs}&\text { francs supplied}\
\
600&\$0.05&0\
500 & 0.10 & 100 \
400 & 0.15 & 200 \
300 & 0.20 & 300 \
200 & 0.25 & 400 \
100 & 0.30 & 500\
0&0.35&600
\end{array}$
-Refer to Table 15.1. If monetary authorities fix the exchange rate at $0.30 per franc, there will be a:

Accepted Answer

A)  Shortage of 200 francs 
B)  Shortage of 400 francs 
C)  Surplus of 200 francs 
D)  Surplus of 400 francs 
A)  Shortage of 200 francs 
B)  Shortage of 400 francs 
C)  Surplus of 200 francs 
D)  Surplus of 400 francs

Question 9

If Mexico fully dollarizes its economy, it agrees to

Accepted Answer

A)  Print pesos only to finance deficits of its national government 
B)  Use the U.S. dollar alongside its peso to finance transactions 
C)  Have the U.S. Treasury be in charge of its tax collections 
D)  Replace pesos with U.S. dollars in its economy 
A)  Print pesos only to finance deficits of its national government 
B)  Use the U.S. dollar alongside its peso to finance transactions 
C)  Have the U.S. Treasury be in charge of its tax collections 
D)  Replace pesos with U.S. dollars in its economy

Question 10

Small nations (e.g., the Ivory Coast) whose trade and financial relationships are mainly with a single partner tend to utilize:

Accepted Answer

A)  Pegged exchange rates 
B)  Freely floating exchange rates 
C)  Managed floating exchange rates 
D)  Crawling pegged exchange rates 
A)  Pegged exchange rates 
B)  Freely floating exchange rates 
C)  Managed floating exchange rates 
D)  Crawling pegged exchange rates

Question 11

Which nations use multiple exchange rates the most and why?

Accepted Answer

Multiple exchange rates are us

Question 12

The special drawing right is a currency basket of five major industrial country currencies.

Accepted Answer

A) True 
 B)False

Question 13

Figure 15.1 shows the market for the Swiss franc. In the figure, the initial demand for marks and supply of marks are depicted by DS1U1B10S1U1B0 and SS1U1B10S1U1B0 respectively.
Figure 15.1. The Market for the Swiss Franc
  
-Refer to Figure 15.1. Suppose the demand for francs increases from D0 to D1. Under a fixed exchange rate system, the U.S. exchange stabilization fund could maintain a fixed exchange rate of $0.50 per franc by:

Accepted Answer

A)  Selling francs for dollars on the foreign exchange market 
B)  Selling dollars for francs on the foreign exchange market 
C)  Decreasing U.S. exports, thus decreasing the supply of francs 
D)  Stimulating U.S. imports, thus increasing the demand for francs 
A)  Selling francs for dollars on the foreign exchange market 
B)  Selling dollars for francs on the foreign exchange market 
C)  Decreasing U.S. exports, thus decreasing the supply of francs 
D)  Stimulating U.S. imports, thus increasing the demand for francs

Question 14

If Uganda revalues its shilling by 20 percent and Burundi devalues its franc by 5 percent, the shillings exchange value will appreciate by 25 percent against the franc.

Accepted Answer

A) True 
 B)False

Question 15

Pegging to a single currency is generally done by developing nations whose trade and financial relationships are mainly with a single industrial-country partner.

Accepted Answer

A) True 
 B)False

Question 16

Suppose Sweden's inflation rate is $\underline {  \text { less }  }$ than that of its trading partner. Under a floating exchange rate system, Sweden would experience a:

Accepted Answer

A)  Appreciation in its currency 
B)  Depreciation in its currency 
C)  Fall in the level of its exports 
D)  Rise in the level of its imports 
A)  Appreciation in its currency 
B)  Depreciation in its currency 
C)  Fall in the level of its exports 
D)  Rise in the level of its imports

Question 17

Under the historic adjustable pegged exchange-rate system, member countries were permitted to correct $\underline {   \text { persistent } }$ and $\underline {  \text { sizable }  }$ payment deficits (i.e., fundamental disequilibrium) by:

Accepted Answer

A)  Officially revaluing their currencies 
B)  Officially devaluing their currencies 
C)  Allowing their currencies to depreciate in the free market 
D)  Allowing their currencies to appreciate in the free market 
A)  Officially revaluing their currencies 
B)  Officially devaluing their currencies 
C)  Allowing their currencies to depreciate in the free market 
D)  Allowing their currencies to appreciate in the free market

Question 18

An objective of the dollarization of the Mexican economy would be to:

Accepted Answer

A)  Shield its economy from hyperinflation, currency depreciation, and capital flight 
B)  Allow the Federal Reserve to be its lender of last resort 
C)  Ensure that its monetary policy is independent of the Federal Reserve 
D)  Permit it to benefit from tariffs and subsidies imposed by the U.S. government 
A)  Shield its economy from hyperinflation, currency depreciation, and capital flight 
B)  Allow the Federal Reserve to be its lender of last resort 
C)  Ensure that its monetary policy is independent of the Federal Reserve 
D)  Permit it to benefit from tariffs and subsidies imposed by the U.S. government

Question 19

If Uganda sets its par value at 400 shillings per SDR and Burundi sets its par value at 200 francs per SDR, the official exchange rate is 1 franc = o.5 shillings.

Accepted Answer

A) True 
 B)False

Question 20

Table 15.1. The Market for Francs
 $\begin{array}{ccc}
\text { Quantity of}&\text { Dollar price}& \text { Quantity of}\
\text { francs demanded}&\text { of francs}&\text { francs supplied}\
\
600&\$0.05&0\
500 & 0.10 & 100 \
400 & 0.15 & 200 \
300 & 0.20 & 300 \
200 & 0.25 & 400 \
100 & 0.30 & 500\
0&0.35&600
\end{array}$
-Refer to Table 15.1. If monetary authorities fix the exchange rate at $0.10 per franc, there would be a:

Accepted Answer

A)  Shortage of 200 francs 
B)  Shortage of 400 francs 
C)  Surplus of 200 francs 
D)  Surplus of 400 francs 
A)  Shortage of 200 francs 
B)  Shortage of 400 francs 
C)  Surplus of 200 francs 
D)  Surplus of 400 francs

By the early 1970s, gold had been phased out of the international monetary system.

Under managed-floating exchange rates, market forces are allowed to determine exchange rates in the short run while central bank intervention is used to stabilize exchange rates in the long run.

The Australian dollar is currently regarded is the key currency of the international monetary system.

Under an adjustable-pegged system, market exchange rates are intended to be maintained within a narrow band around a currency's official exchange rate. In the case of fundamental disequilibrium, the currency can be devalued or revalued to promote current-account equilibrium.

As a policy instrument, currency $\underline { \text { devaluation } }$ may be controversial since it:

Under a floating exchange-rate system, if American exports $\underline { \text { decrease } }$ and American imports rise, the value of the dollar will:

To defend a pegged exchange rate that $\underline { \text { overvalues } }$ its currency, a country could:

If Mexico fully dollarizes its economy, it agrees to

Small nations (e.g., the Ivory Coast) whose trade and financial relationships are mainly with a single partner tend to utilize:

Which nations use multiple exchange rates the most and why?

The special drawing right is a currency basket of five major industrial country currencies.

If Uganda revalues its shilling by 20 percent and Burundi devalues its franc by 5 percent, the shillings exchange value will appreciate by 25 percent against the franc.

Pegging to a single currency is generally done by developing nations whose trade and financial relationships are mainly with a single industrial-country partner.

Suppose Sweden's inflation rate is $\underline { \text { less } }$ than that of its trading partner. Under a floating exchange rate system, Sweden would experience a:

Under the historic adjustable pegged exchange-rate system, member countries were permitted to correct $\underline { \text { persistent } }$ and $\underline { \text { sizable } }$ payment deficits (i.e., fundamental disequilibrium) by:

An objective of the dollarization of the Mexican economy would be to:

If Uganda sets its par value at 400 shillings per SDR and Burundi sets its par value at 200 francs per SDR, the official exchange rate is 1 franc = o.5 shillings.

The International Economy and Globalization

Foundations of Modern Trade Theory: Comparative Advantage

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

Regional Trading Arrangements

International Factor Movements and Multinational Enterprises

The Balance of Payments

Foreign Exchange

Exchange-Rate Determination

Mechanisms of International Adjustment

Exchange-Rate Adjustments and the Balance of Payments

Macroeconomic Policy in an Open Economy

International Banking: Reserves, Debt, and Risk

Filters

Exam 15: Exchange-Rate Systems and Currency Crises

By the early 1970s, gold had been phased out of the international monetary system.

Under managed-floating exchange rates, market forces are allowed to determine exchange rates in the short run while central bank intervention is used to stabilize exchange rates in the long run.

The Australian dollar is currently regarded is the key currency of the international monetary system.

Under an adjustable-pegged system, market exchange rates are intended to be maintained within a narrow band around a currency's official exchange rate. In the case of fundamental disequilibrium, the currency can be devalued or revalued to promote current-account equilibrium.

As a policy instrument, currency devaluation ‾\underline { \text { devaluation } } devaluation ​ may be controversial since it:

Under a floating exchange-rate system, if American exports decrease ‾\underline { \text { decrease } } decrease ​ and American imports rise, the value of the dollar will:

To defend a pegged exchange rate that overvalues ‾\underline { \text { overvalues } } overvalues ​ its currency, a country could:

If Mexico fully dollarizes its economy, it agrees to

Small nations (e.g., the Ivory Coast) whose trade and financial relationships are mainly with a single partner tend to utilize:

Which nations use multiple exchange rates the most and why?

The special drawing right is a currency basket of five major industrial country currencies.

If Uganda revalues its shilling by 20 percent and Burundi devalues its franc by 5 percent, the shillings exchange value will appreciate by 25 percent against the franc.

Pegging to a single currency is generally done by developing nations whose trade and financial relationships are mainly with a single industrial-country partner.

Suppose Sweden's inflation rate is less ‾\underline { \text { less } } less ​ than that of its trading partner. Under a floating exchange rate system, Sweden would experience a:

Under the historic adjustable pegged exchange-rate system, member countries were permitted to correct persistent ‾\underline { \text { persistent } } persistent ​ and sizable ‾\underline { \text { sizable } } sizable ​ payment deficits (i.e., fundamental disequilibrium) by:

An objective of the dollarization of the Mexican economy would be to:

If Uganda sets its par value at 400 shillings per SDR and Burundi sets its par value at 200 francs per SDR, the official exchange rate is 1 franc = o.5 shillings.

The International Economy and Globalization

Foundations of Modern Trade Theory: Comparative Advantage

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

Regional Trading Arrangements

International Factor Movements and Multinational Enterprises

The Balance of Payments

Foreign Exchange

Exchange-Rate Determination

Mechanisms of International Adjustment

Exchange-Rate Adjustments and the Balance of Payments

Macroeconomic Policy in an Open Economy

International Banking: Reserves, Debt, and Risk

Filters

As a policy instrument, currency $\underline { \text { devaluation } }$ may be controversial since it:

Under a floating exchange-rate system, if American exports $\underline { \text { decrease } }$ and American imports rise, the value of the dollar will:

To defend a pegged exchange rate that $\underline { \text { overvalues } }$ its currency, a country could:

Suppose Sweden's inflation rate is $\underline { \text { less } }$ than that of its trading partner. Under a floating exchange rate system, Sweden would experience a:

Under the historic adjustable pegged exchange-rate system, member countries were permitted to correct $\underline { \text { persistent } }$ and $\underline { \text { sizable } }$ payment deficits (i.e., fundamental disequilibrium) by: