Deck 8: The International Finance and Monetary Structure

Question 1

No. 4 on the list of class discussion questions at the end of the chapter would make a good essay question: Write an essay in which you describe how economic liberal ideas and globalization positively and negatively shaped developments in the monetary and finance structure. On balance, do you think the developments were mostly positive or negative? Explain why. Cite specific examples from the chapter and news articles.

Answer 1

No Answer.

Question 2

No. 5 on that list would also make a good essay question: Write an essay in which you explain what specific political and economic factors have contributed to the United States' huge current account deficit. Who does this deficit help and hurt? Discuss how this deficit can in the near future impact other countries' willingness to invest money in U.S. Treasuries (i.e. loan to the U.S. government). Discuss the extent to which this deficit undermines U.S. hegemony and system stability. Cite specific examples from the chapters and news articles.

Answer 2

No Answer.

Question 3

Briefly outline the main features of the Gold, Fixed-Exchange Rate, and Managed-Exchange Rate financial systems. Then explain whether or not, in light of the 2007-2008 financial crisis, decision makers should adopt a new system. If not, explain why. If so, outline a few institutions or rules that should be incorporated into a new system.

Answer 3

No Answer.

Question 4

How likely is China to be the next hegemon of the global financial system? What does it have in its favor and what obstacles stand in its way?

Question 5

What criticisms would you make of the way the U.S. government responded to the global financial crisis? For example: Was it unfair? Was too much done to bail out financial institutions? Was not enough done for ordinary people and "Main Street"? Was there not enough accountability?

Question 6

Which of the following statements about hard and soft currencies is incorrect?

A) The Canadian dollar is a hard currency.
B) The Russian ruble is a hard currency.
C) The Swiss franc is a hard currency.
D) Brazil's real is a soft currency.

Question 7

Which of the following was not a characteristic of the fixed exchange rate system of the finance and monetary structure?

A) The price of gold was fixed at $35 an ounce.
B) The formal and informal rules of this system reflected a political bargain between the United States and Western Europe whereby the United States provided security to Western Europe in exchange for its acceptance of U.S. hegemony.
C) The IMF used a variety of borrowing measures to regulate currency value adjustments.
D) Currency values were allowed to adjust up or down freely according to supply and demand conditions in the market for the U.S. dollar.

Question 8

Which leader complained that by holding (unofficially) weak U.S. dollars, his country was helping pay for the unpopular Vietnam War?

A) Harold Wilson of Great Britain
B) Mao Zedong of China
C) Charles de Gaulle of France
D) Lester Pearson of Canada

Question 9

Since 1944, the role of the IMF in the monetary and finance structure has been

A) to increase the amount of liquidity in the international financial system.
B) to ensure a stable international monetary system.
C) to help countries with balance of payments problems on a short-term basis.
D) all of the above.

Question 10

Which indicator is most important when it comes to determining the balance of payments and whether or not a nation is going into debt?

A) the balance of trade
B) the capital account
C) the current account
D) none of the above

Question 11

Which term refers to a process in which investors quickly shift their funds out of a nation in search of a "safe harbor" for their investments?

A) capital flight
B) a balance of payments crisis
C) a speculative attack on a currency
D) a panic attack

Question 12

This event signaled the beginning of the Asian financial crisis in July of 1997:

A) when foreign investors pulled most of their fund out of South Korea
B) when the Thai government was overthrown in a military coup
C) when the Thai government could no longer support the 25 to 1 value of the Thai baht to the U.S. dollar
D) when the IMF signaled that Thailand's government was no longer worthy of credit

Question 13

Which of the following statements about the financial crisis from 2007 to 2009 is incorrect?

A) The U.S. Federal Reserve played the role of "lender of last resort."
B) The Federal Reserve rescued AIG, one of the world's largest bank insurers.
C) Under Obama, the U.S. Congress passed a $2 trillion stimulus spending package.
D) The U.S. temporarily government gained majority ownership of General Motors (GM) and Chrysler.

Question 14

A toxic security is another name for

A) bank mortgages and investments that lost a good deal of their value during the global financial crisis.
B) credit default swaps.
C) the U.S. version of SWFs.
D) a new drink in honor of all the CEOs of major businesses who lost their jobs during the financial crisis.

Question 15

The policy of the U.S. Federal Reserve to increase the money supply by purchasing hundreds of billions of dollars in bonds and mortgage-backed securities is called

A) quantitative easing.
B) crony capitalism.
C) a Ponzi scheme.
D) the Dodd-Frank Act.

Question 16

What is "bitter medicine"?

A) The fees major banks have imposed on customers to bring down bank debt
B) Another name for austerity policies in Europe
C) The U.S. TARP program
D) A drink in honor of all the working class and poor who lost out during the financial crisis

Question 17

Which of the following did the Dodd-Frank Act require?

A) Prosecution of Wall Street insiders
B) Modification of mortgages for struggling homeowners.
C) Tighter limits on bank executives' pay and bonuses in exchange for government bailouts of banks
D) Banks' holding of more capital and collateral in reserve

Question 18

Which of the following statements about exchange rates is incorrect?

A) Between 2008 and 2017, the euro appreciated against the U.S. dollar.
B) Between 2000 and 2008, the U.S. dollar declined in value relative to the euro and renminbi.
C) Between 2011 and 2017, the yen appreciated significantly against the U.S. dollar.
D) After 2004, the Chinese government let the renminbi depreciate against the U.S. dollar.

Question 19

Which IPE scholar believes that the U.S. dollar is very likely to remain the world's indispensable currency for many years to come?

A) Benjamin Cohen
B) Carla Norrlof
C) Barry Eichengreen
D) All of the above

Question 20

In 2017, approximately what percentage of the world's official foreign exchange reserves were in U.S. dollars?

A) 20%
B) 33%
C) 64%
D) 88%