Deck 6: Money and Banking

Question 1

Private money is a unit of exchange issued by a government agency (such as a treasury department) or government-controlled financial institution (such as a central bank).

Answer 1

False

Question 2

A member state obligates itself upon joining the IMF to observe a code of conduct.

Answer 2

True

Question 3

Only members of the IMF can become members of the World Bank.

Answer 3

True

Question 4

The IMF forbids member states from imposing restrictions on the payments or transfers involving current international transactions.

Question 5

All the shares of the Bank for International Settlements are owned by the World Bank and the IMF.

Question 6

The Board of Governors is the highest authority of the IMF.

Question 7

The IMF's unit of account is the SDR.

Question 8

The value of official money is nominally constant.

Question 9

Reserve currency can consist of any commodity that is easily transferable and reasonably nonspoilable.

Question 10

The first modern international monetary system was the Special Drawing Right of the IMF.

Question 11

An IMF member is entitled to two credit tranches, each equivalent to 50 percent of its quota.

Question 12

During 1945, the IMF's par value system of currency exchange allowed members to define the value of their currency by any criteria except gold.

Question 13

The American interpretation of the term "exchange contracts" excludes securities contracts.

Question 14

The president of the Bank for International Settlements nominates its general manager.

Question 15

The IMF's Articles of Agreement requires a member to buy its own currency from other members who have acquired it as the result of "current transactions."

Question 16

The IMF was created immediately after the collapse of the gold standard system.

Question 17

The World Bank is the world's oldest international organization involved in monetary cooperation.

Question 18

The Bank for International Settlements does not provide bridging loans.

Question 19

The currency exchange system established by the IMF at its inception was known as the gold bullion standard.

Question 20

The World Bank decides what projects are to be funded by the Global Environment Facility.

Question 21

Bank deposits made by individuals cannot be commingled by the bank for its own use.

Question 22

One of the major reform measures of the Basel III is to improve risk management and governance of the banking system.

Question 23

Which of the following meetings was instrumental in the creation of the International Monetary Fund?

A) the Potsdam Conference
B) the Solvay Conference
C) the Bretton Woods Conference
D) the Second Quebec Conference

Question 24

One of the functions of a central bank is regulating the quantity of money in circulation.

Question 25

Which of the following describes a currency basket in monetary transaction?

A) an exchange rate system wherein a currency's value is allowed to fluctuate according to the foreign exchange market
B) a contractual provision that says that the price will be adjusted according to the inflation rate
C) a selected group of currencies whose weighted average is used to define the amount of an obligation
D) a scheme for fixing the exchange rate of a currency by matching its value to the value of another single currency

Question 26

The holder of an option contract is obligated to complete its transaction within the stipulated time.

Question 27

Which of the following is the reserve currency used by the IMF?

A) Ven
B) Special Drawing Right (SDR)
C) European Currency Unit (ECU)
D) World Currency Unit (Wocu)

Question 28

In an option contract, if the right is to buy a commodity, the option is known as a call.

Question 29

According to economist John Maynard Keynes and U.S. Treasury official Harry Dexter White, which of the following was one of the conditions that had helped to produce and prolong the Great Depression of the 1930s?

A) the shortage of production of gold in the U.S.
B) the lack of a standard for determining the value of national currencies
C) the dereliction of the code of conduct by IMF member states
D) the lack of demand for the gold in national treasuries

Question 30

Which of the following parts of the IMF gives the final approval for the quota a state seeking to join the IMF should pay?

A) member states having at least 85 per cent of the total vote share
B) all the member nations of the IMF
C) the IMF Board of Governors
D) the IMF Executive Board

Question 31

A(n) ________ clause is a contractual provision that says that the price will be adjusted according to the inflation rate.

A) stabilization
B) indemnification
C) force majeure
D) maintenance of value

Question 32

IMF's Articles of Agreement establishes ________.

A) gold bullion as a standard of foreign exchange
B) gold coins as a the primary source of foreign exchange
C) SDR as the international form of currency
D) a system for currency support

Question 33

The principle that an obligation to pay a particular sum of money is fixed and does not change even if the purchasing power or foreign exchange rate of the money does change is known as ________.

A) the choice-of-law rule
B) centrism
C) nominalism
D) the stabilization clause

Question 34

Which of the following is true of private money?

A) It can only be used for making payments between private parties who agree in advance to its use.
B) It cannot consist of any other sort of transferable material but official money.
C) It can be used to pay public debts.
D) It is an example of reserve currency.

Question 35

The gold standard differed from the gold bullion standard in that the gold standard ________.

A) used gold coins of standard specification
B) was highly liquid
C) backed paper currency with gold bullions
D) did not use minted gold coins

Question 36

Private money differs from official money in that private money ________.

A) cannot be used to pay debts
B) is exclusively used by the government
C) cannot be lent to private individuals
D) can also consist of stocks of rare metal

Question 37

Which of the following is the way in which the IMF's SDR helps in controlling currency fluctuation?

A) by acting as a basket currency in foreign exchange transactions
B) by substituting as an international currency
C) by imposing nonconvertibility from currency to gold and vice versa
D) by allowing a currency's value to fluctuate according to the foreign exchange market

Question 38

Accounts in domestic banks that are maintained and paid in a foreign currency are commonly free of the monetary control restrictions imposed by their issuing country.

Question 39

The ________ is the money used to define the amount of an obligation.

A) money of payment
B) money of account
C) book value
D) par value

Question 40

Which of the following is true of the IMF's SDR?

A) It cannot be added to the member states' foreign currency.
B) Its value is set daily using a set of four major currencies.
C) All the four currencies are given equal weight while determining the value of the SDR.
D) One of the currencies used for calculating the value of SDR is Russian Ruble.

Question 41

The currency exchange mechanism established in 1945 by the Articles of Agreement of the IMF was called the ________.

A) gravity model of trade
B) par value system
C) gold exchange standard
D) gold bullion standard

Question 42

Only countries that are parties to the Climate Change Convention or the ________ are eligible to receive funds from the Global Environment Facility (GEF).

A) Basel Convention
B) Convention on Biological Diversity
C) Kyoto Protocol
D) Bretton Woods Conference

Question 43

Which of the following IMF facilities essentially acts as bridging loans provided to member states while the IMF deliberates about whether to provide other funds to the particular member state?

A) the Concessional IMF Facility
B) the Standby Arrangement
C) the reserve tranche
D) the credit tranche

Question 44

Accounts in domestic banks that are maintained and paid in a foreign currency are generally known as ________.

A) checking accounts
B) asset accounts
C) Eurocurrency deposits
D) recurring deposits

Question 45

Which of the following was the major change made in the Second Amendment to the IMF's Articles of Agreement in 1976?

A) It allows members to define the value of their currency by any criteria except gold.
B) It implements the U.S. dollar as its international reserve currency.
C) It establishes the IMF's SDR as an international currency.
D) It prohibits members from pegging their currency to a currency basket.

Question 46

Which of the following is the most commonly used short-term liquid instrument for trading in the interbank market?

A) a certificate of deposit
B) a deed
C) a letter of credit
D) a check

Question 47

Which of the following is a relation between the World Bank and the Global Environment Facility (GEF)?

A) The World Bank is responsible for managing the Trust Fund of the GEF.
B) The World Bank determines what projects will be funded by the GEF.
C) The GEF only funds nations that are members of the World Bank.
D) The GEF is considered as the primary developmental arm of the World Bank.

Question 48

Which of the following is an example of a central bank that is owned by a national government?

A) the Bank of England
B) the Central American Monetary Union
C) the World Bank
D) the Arab Monetary Fund

Question 49

The ________ is an intergovernmental organization, headquartered in Basel, which functions as a bank for the world's central banks.

A) International Monetary Fund
B) World Bank
C) Bank for International Settlements
D) World Trade Organization

Question 50

Which of the following is true of the IMF's credit tranche?

A) Each credit tranche is equivalent to 50 percent of the member's quota.
B) A member is entitled to four credit tranches.
C) A credit tranche cannot be used to make balance-of-payments.
D) All credit tranches are subject to similar rules or conditions.

Question 51

The IMF's _______ consists of that share of a member state's quota that it did not contribute in its own currency.

A) Standby Arrangement
B) Extended Fund Facility
C) reserve tranche
D) credit tranche

Question 52

Which of the following is true of the International Fund for Agricultural Development (IFAD)?

A) It is considered to be the developmental arm of the IMF.
B) It is primarily concerned with funding projects concerning global environmental problems.
C) Its membership is limited to the members of the Global Environmental Facility.
D) Its membership is open to any member of the UN.

Question 53

The IMF Agreement grants to the ________ of the Fund the authority to interpret the provisions of the Agreement.

A) Board of Governors
B) Executive Board
C) members
D) Central Council

Question 54

Which of the following is a principal argument against the enforcement of Article VIII, Section 2(b), of the IMF's Articles of Agreement?

A) that it depends unduly on the gold exchange rate system of monetary exchange
B) that it places a lot of importance on the gold reserves that a country owns
C) that it downplays the importance of interdependence of member nations
D) that it is at odds with a longstanding choice of law rule

Question 55

Which of the following organizations issues bank notes and coins and regulates the quantity of money in circulation?

A) the World Bank
B) the International Monetary Fund
C) A commercial bank
D) A central bank

Question 56

Which of the following facilitates come under Special IMF Facilities?

A) reserve tranche
B) Special Arrangements
C) Concessional IMF Facility
D) Contingent Credit Lines

Question 57

The Concessional IMF Facility is designed ________.

A) to help countries address short-term balance-of-payments problems
B) for providing bridging loans to member states while the IMF deliberates about whether to provide other funds to the particular member state
C) for low-income member countries with protracted balance-of-payment problems
D) to help a country deal with a temporary depletion of its foreign exchange reserves due to a natural disaster

Question 58

Which of the following sections of the IMF Articles of Agreement requires a member to buy its own currency from other members who have acquired it as the result of current transactions?

A) Section 2(a) of Article VIII
B) Section 2(b) of Article VIII
C) Section 5 of Article VIII
D) Section 4 of Article VIII

Question 59

A(n) ________ is a promissory note issued by a bank in which the bank promises to repay money it has received, plus interest, at a certain time.

A) letter of credit
B) certificate of deposit
C) option contract
D) allonge

Question 60

According to the par value system, every member of the IMF, on joining the Fund, ________.

A) had to implement the U.S. dollar as its international reserve currency
B) had to adopt the gold exchange rate system of monetary exchange
C) had to declare a value at which its currency could be converted into gold
D) had to define the value of their currency by any criteria except gold

Question 61

Which of the following terms refers to the nearly simultaneous purchase of a commodity (such as a currency) in one market and its sale in another to profit from the price differential?

A) allonge
B) expropriation
C) arbitrage
D) condonation

Question 62

Which of the following describes a spot contract?

A) a contract that creates the right-but not the obligation-to buy or sell a specific amount of a commodity at a fixed price within an agreed-upon period of time
B) a contract in which a commodity is presently sold and the price is presently paid but delivery is, by agreement, delayed to a later date
C) a contract for the immediate sale and delivery of a commodity, such as a currency
D) a promise to buy or sell a commodity for a specified price, with both delivery and payment to be made at a specified future date

Question 63

In an option contract, if the right is to make a sale, the option is known as a ________.

A) spread eagle
B) straddle
C) call
D) put

Question 64

What is the role of the International Development Agency (IDA) and the International Finance Corporation (IFC) in connection with the World Bank?

Question 65

Explain a future contract.

Question 66

Describe the standby arrangement facility provided by the IMF.

Question 67

In which of the following contracts is the delivery delayed, though the commodity is sold and paid for?

A) a forward contract
B) an option contract
C) a spot contract
D) a future contract

Question 68

How does a bank transfer money internationally?

Question 69

A(n) ________ is a three-party instrument on which the drawer makes an unconditional order to a drawee to pay a named payee.

A) allonge
B) bill of exchange
C) letter of credit
D) certificate of deposit

Question 70

When a bank acts as an agent of another bank, especially in carrying a deposit balance for the latter, then that bank will be referred to as a ________.

A) commercial bank
B) central bank
C) reserve bank
D) correspondent bank

Question 71

Which of the following is true of a futures contract?

A) They are not standardized contracts.
B) They are transferable contracts.
C) They require immediate delivery of the commodity.
D) They require immediate payment of the price.

Question 72

Explain the IMF's "conditionality" requirement.

Question 73

A(n) ________ contract creates the right-but not the obligation-to buy or sell a specific amount of a commodity at a fixed price within an agreed-upon period of time.

A) forward
B) spot
C) future
D) option

Question 74

Explain the role of the Bank for International Settlements as the central banks' bank?

Question 75

What is the basic code of conduct that member nations are obligated to follow upon joining the IMF?

Question 76

What are the different types of monies that are required in an international transaction?

Question 77

Discuss the use of the IMF's SDR in international transactions?

Question 78

Describe the significance of IMF quotas.