Deck 35: The International Monetary System: Order or Disorder

Question 1

Other things equal, countries that offer investors higher rates of return attract more capital than countries that offer lower rates.

Answer 1

True

Question 2

Purchasing-power parity theory states that relative prices in any two countries determine the exchange rate between their currencies.

Answer 2

True

Question 3

The supply of a country's currency arises from its imports and from foreign investment by its own citizens.

Answer 3

True

Question 4

When the dollar buys less foreign currency, there has been a depreciation of the dollar.

Question 5

Demand for a country's exports leads to demand for its currency.

Question 6

A rise in interest rates is expected to lead to an appreciation of the currency, and a drop in interest rates is expected to lead to a depreciation.

Question 7

When the dollar buys more foreign currency, there has been appreciation of the dollar.

Question 8

Countries with relatively low inflation rates will have appreciating currencies.

Question 9

What is a depreciation to one country must be an appreciation to the other.

Question 10

Inflation plays a major role in determining whether a currency is appreciating or depreciating.

Question 11

A devaluation is a reduction in the official value of a currency.

Question 12

A revaluation is an increase in the official value of a currency.

Question 13

Demand for a country's financial assets leads to demand for its currency.

Question 14

The Big Mac index uses prices of a common item to predict long-run changes in exchange rates.

Question 15

Foreign direct investment leads to demand for a country's currency.

Question 16

If the price of the dollar changes from 100 Japanese yen to 120 Japanese yen, the dollar has appreciated

Question 17

The exchange rate states the price, in terms of one currency at which another currency can be bought.

Question 18

Purchasing-power parity plays a major role in long-run exchange rate movements.

Question 19

The demand for U.S. dollars is derived from foreign demand for U.S. exports.

Question 20

Floating exchange rates are rates determined in free markets by the law of supply and demand.

Question 21

Stronger economic performance often leads to currency appreciation because it improves prospects for investing in the country.

Question 22

Balance of payments deficits arise whenever the exchange rate is set at an artificially high level.

Question 23

Balance of payments deficits arise whenever the exchange rate is pegged at an artificially high level.

Question 24

The gold standard established fixed exchange rates among all countries.

Question 25

Under floating exchange rates, investors who speculate on international currency values provide a valuable service by assuming the risks of those who do not wish to speculate.

Question 26

Capital movements are typically the dominant factor in determining exchange rates in the short and medium run.

Question 27

When a government influences the exchange rate of its currency, it is said to be practicing "dirty floating."

Question 28

Under the Bretton Woods system of fixed exchange rates, the price of the U.S. dollar was fixed in terms of gold and the prices of all other currencies were fixed in terms of dollars.

Question 29

The International Monetary Fund was established to manage the Bretton Woods System.

Question 30

The balance of payments deficit is the amount by which the quantity supplied of a country's currency (per year) exceeds the quantity demanded..

Question 31

Balance of payments surpluses arise whenever the exchange rate is pegged at an artificially low level.

Question 32

A country's imports will rise quickly when its economy booms and rise only slowly when its economy stagnates .

Question 33

The current account balance includes international purchases and sales of goods and services, cross-border interest and dividend payments, and cross-border gifts to and from both private individuals and governments. It is approximately the same as net exports.

Question 34

The gold standard prevented a nation from controlling its domestic economy through monetary policy.

Question 35

Fixed exchange rates are rates set by government decisions and maintained by government actions.

Question 36

In 2001, the Argentine peso was overvalued relative to the U.S. dollar.

Question 37

According to the purchasing-power parity theory, differences in domestic inflation rates are a major cause of exchange rate movements.

Question 38

A country that grows faster than the rest of the world should find its imports growing faster than its exports.

Question 39

If one country has higher inflation than another, its exchange rate should depreciate.

Question 40

A fixed exchange rate system encourages speculators to attack weaker currencies.

Question 41

In 2007, the value of the U.S. dollar

A) increased relative to the euro.
B) decreased relative to the euro.
C) remained stable relative to the euro.
D) was equal to the value of the euro.

Question 42

There is an exchange rate between

A) every pair of currencies.
B) the world's major currencies but not between the currencies of less-developed countries.
C) currencies on a fixed exchange rate system but not for those on a floating rate system.
D) the currencies of the European Union but not for the nations outside the European Union.

Question 43

On May 12, 2011, the U.S. dollar was worth 0.61 British pounds. How many dollars did it take to buy 1 British pound?

A) 1.19
B) 1.61
C) 1.64
D) 2.19

Question 44

At any given moment, there is one exchange rate

A) for currencies in the free world.
B) between every pair of currencies.
C) for all the world's currencies.
D) established by the Federal Reserve Board.

Question 45

The exchange rate

A) is the ratio of two countries' GDPs.
B) is the rate at which one country's money is flowing into another country.
C) states the price of one currency in terms of another currency.
D) is closely related to the concept of absolute advantage.

Question 46

Is it possible for a currency to appreciate relative to one currency, and depreciate relative to another?

A) No, a currency rises or falls against all currencies.
B) No, this could happen only under the gold standard.
C) Yes, but only if all governments agree on the new rates.
D) Yes, this is possible in a world of floating rates.

Question 47

Appreciation is the term used to describe

A) the conversion of one currency into another currency in the free market.
B) a reduction in the official value of a currency.
C) the upward movement of currencies in a free market.
D) an increase in the official value of a currency.

Question 48

On May 12, 2011, it cost U.S. $.04 to buy 1 Russian ruble. How many Russian rubles would U.S. $1 buy?

A) 40
B) 33
C) 25
D) 14

Question 49

On May 12, 2011, the U.S. dollar was worth 28 Russian rubles. How many U.S. dollars did it take to buy 1 Russian ruble?

A) 0.01
B) 0.04
C) 0.28
D) 0.40

Question 50

If the price of the dollar changes from 135 Japanese yen to 127 Japanese yen, the dollar has

A) appreciated.
B) depreciated.
C) stayed the same.
D) none of these.

Question 51

The balance of payments surplus is the amount by which the quantity demanded of a country's currency (per year) exceeds the quantity supplied.

Question 52

The Big Mac index is a measure of how well the purchasing power parity theory works.

Question 53

One disadvantage of the gold standard was that no nation had control of its domestic monetary policies.

Question 54

The ¬_______ is a way to fix exchange rates by defining each participating currency in terms of gold and allowing holders of each participating currency to convert that currency into gold.

A) gold standard
B) silver standard
C) bronze standard
D) none of these

Question 55

The ________ balance includes purchases and sales of financial assets to and from citizens and companies of other countries.

A) capital account
B) investment account
C) current account
D) none of these

Question 56

If the dollar appreciates , it can be said that

A) foreigners respect the United States more.
B) it increases in value within the United States.
C) other currencies depreciate.
D) it takes more dollars to buy foreign currencies.

Question 57

If the dollar depreciates , it can be said that

A) foreign countries no longer respect the United States.
B) it falls in value within the United States.
C) it takes fewer dollars to buy foreign currencies.
D) other currencies appreciate.

Question 58

On May 12, 2011, the U.S. dollar was worth 0.70 euros. How many dollars did it take to buy 1 euro?

A) 0.70
B) 1.43
C) 1.70
D) 2.70

Question 59

On May 12, 2011, it cost U.S. $1.64 to buy 1 British pound. How many British pounds would U.S. $1 buy?

A) 0.56
B) 0.61
C) 1.64
D) 2.64

Question 60

On May 12, 2011, it cost U.S. $1.44 to buy 1 euro. How many euros would U.S. $1 buy?

A) 0.69
B) 1.44
C) 1.69
D) 2.44

Question 61

If a currency increases in value in response to market forces, this process is known as

A) reflation.
B) revaluation.
C) appreciation.
D) value-added.

Question 62

Who among the following is most likely to favor an appreciation of the U.S. dollar?

A) A German professor visiting Chicago
B) An American farmer who depends on exports
C) An American professor on a tour of Austrian universities
D) Disney World in Orlando, Florida, a popular destination for foreign tourists

Question 63

On May 11, 2011, it cost 11.601 Mexican pesos to buy 1 U.S. dollar. How many U.S. dollars did it take to buy a Mexican peso?

A) $11.11
B) $10.82
C) $8.92
D) $0.09

Question 64

Americans needing foreign currencies get those currencies from a bank. The ultimate source of these currencies is

A) U.S. investments abroad.
B) U.S. exports to foreign countries.
C) U.S. imports of foreign goods and services.
D) the International Monetary Fund.

Question 65

If a currency increases in value as a result of government decree rather than market forces, the process is known as

A) reflation.
B) revaluation.
C) appreciation.
D) value-added.

Question 66

The rate at which one currency is traded for another is called a(n)

A) prime rate.
B) trade rate.
C) exchange rate.
D) money rate.

Question 67

The demand for euros would come from

A) American exports to Europe.
B) European demand for U.S. government bonds.
C) American demand for European real estate.
D) All of the above are correct.

Question 68

If the quantity of euro demanded were greater than the quantity supplied, then the price of the

A) euro would rise.
B) euro would fall.
C) dollar would rise.
D) euro would be in equilibrium.

Question 69

On June 3, 2005, it cost 1.22 U.S. dollars to buy 1 euro. How many euros did it take to buy 1 U.S. dollar?

A) 0.82 euros
B) 0.88 euros
C) 1.22 euros
D) 88 euros

Question 70

If the dollar appreciates relative to other currencies, which of the following is true?

A) It takes more foreign currency to buy a dollar.
B) It takes more dollars to buy a foreign currency.
C) U.S. exports will increase.
D) Foreign purchases of U.S. goods will increase.

Question 71

If a currency decreases in value as a result of government decree rather than market forces, the process is known as

A) devaluation.
B) depreciation.
C) deflation.
D) degeneration.

Question 72

If a currency decreases in value in response to market forces, this process is known as

A) devaluation.
B) depreciation.
C) deflation.
D) degeneration.

Question 73

The supply of euros would come from

A) American demand for European real estate.
B) European demand for U.S. government bonds.
C) Americans vacationing in Barcelona, Spain.
D) French supplies of wine to U.S. importers.

Question 74

If market forces change the exchange rate value of one dollar from 80 yen to 83.25 yen, then the dollar has

A) appreciated.
B) depreciated.
C) been revalued.
D) been devalued.

Question 75

Exchange rates determined by the forces of demand and supply are called

A) fixed exchange rates.
B) floating exchange rates.
C) equilibrium exchange rates.
D) dirty exchange rates.

Question 76

Can the U.S. dollar and the European euro both appreciate relative to each other?

A) Yes, both countries can gain in this manner.
B) Yes, provided the central banks permit it.
C) No, unless there is a system of fixed exchange rates.
D) No, if one currency appreciates, the other must depreciate.

Question 77

Why does anyone demand foreign currency?

A) International trade in goods and services
B) International trade in financial assets
C) Purchases of physical assets overseas
D) All of the above are correct.

Question 78

If the quantity supplied of euro were greater than the quantity demanded, then the price of the

A) euro would rise.
B) euro would fall.
C) dollar would fall.
D) euro would be in equilibrium.

Question 79

Which of the following companies would gain from foreign currency depreciation?

A) Companies that borrow in foreign currency.
B) Companies that export goods and services.
C) Companies that invest in the foreign equity markets.
D) Companies that buy bonds issued by the foreign government.

Question 80

The currency value of Agraria is set by government decree. Which of the following happens when the government alters the exchange rate so that its currency can buy more units of foreign currency?

A) Reflation
B) Devaluation
C) Appreciation
D) Revaluation