Deck 10: The Global Monetary System

Question 1

The Bretton Woods system of fixed exchange rates collapsed in 1973.Since then the many of the world's countries have operated with a

A)mixed system.
B)random monetary system.
C)regulated standard system.
D)monitored spot market.
E)managed-float system

Answer 1

E

Question 2

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

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 debt

Answer 2

B

Question 3

As stipulated by the Bretton Woods conference, the goal of the International Monetary Fund was to:

A)maintain order in the international monetary system
B)establish a world currency
C)promote development
D)set interest rates in members nations
E)establish economic guidelines for countries

Answer 3

A

Question 4

The official name for the World Bank is ________________.

A)The International Monetary Fund
B)The United Nations Fund
C)The United Nations Monetary Fund
D)The Bretton Woods Agreement
E)The International Bank for Reconstruction and Development

Question 5

The Bretton Woods conference created two major international institutions.These are

A)the International Monetary Fund and the World Bank.
B)the World Trade Organization and the United Nations.
C)the World Currency Exchange and the World Bank.
D)the Bretton Woods Monetary Fund and the World Trade Organization.
E)the European Bank of Reconstruction and Development and the World Trade Organization

Question 6

The acronym IMF stands for

A)International Monopoly Function.
B)Interval Monetary Fluctuations.
C)Interagency Monetary Function.
D)International Monetary Fund.
E)International Monetary Formation

Question 7

Institutional arrangements that countries adopt to govern exchange rates refers to

A)floating interest rate.
B)international exchange rate.
C)fixed inflation rate.
D)dirty float.
E)international monetary system

Question 8

The Bretton Woods system of fixed exchange rates

A)has continued to be in force since it was adopted.
B)collapsed in 1973.
C)collapsed shortly after it was adopted.
D)collapsed shortly after it was adopted, but has been reinstated and is in effect today.
E)collapsed because of the Jamaica Agreement

Question 9

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

A)gold standard.
B)federal reserve.
C)industrial revolution.
D)balance-of-trade equilibrium.
E)Bretton-Woods Agreement

Question 10

As stipulated by the Bretton Woods conference, the goal of the World Bank was to

A)maintain order in the international monetary system.
B)promote FDI in developing countries
C)set interest rates in member states.
D)establish a world currency.
E)promote economic development.

Question 11

Critics of the IMF program in Argenina argued that:

A)the culture of corruption was too deeply rooted in Argentina to change
B)foreign investors would not return to Argenina simply because of the IMF program
C)the global economic slowdown limited the impact of the IMF programs
D)Argentina's politics would were too nationalistic and would not allow a foreign institution to interfere in the country
E)the austerity program would only make the crisis worse

Question 12

According to the opening case on Argentina, as with most IMF programs, the focus was on all of these except

A)propping up its currency.
B)stabilizing the value of the Argentina currency.
C)restructuring the economy to reduce government debt.
D)bringing about a change in regime.
E)none of these answers is correct

Question 13

The great strength claimed for the gold standard was that it contained a powerful mechanism for simultaneously achieving a(n) _______________ for all countries.

A)balance-of-trade equilibrium
B)economic stability
C)interest rate parity
D)equal tariff levels
E)currency convertibility

Question 14

The gold standard worked reasonably well until when?

A)the 1870s
B)the 1890s
C)World War I
D)World War II
E)1973

Question 15

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

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

Question 16

The Bretton Woods conferences occurred in ______________ and established the basic framework for the post-World War II international monetary system.

A)1944
B)1959
C)1968
D)1988
E)1999

Question 17

Under the exchange rate system established by the Bretton Woods agreement, the value of most currencies in terms of ______________ was fixed for long periods and was allowed to change only under a specific set of circumstances.

A)British pound
B)Japanese yen
C)U.S.dollars
D)German deutsche mark
E)European Euro

Question 18

The gold standard has it origin in

A)the use of the word "gold" to refer to items of value.
B)the use of gold coins as a medium of exchange.
C)the inherent value placed on gold stones as objects of beauty and value.
D)the use of gold bricks as a medium of exchange between countries.
E)the resistance of gold to depreciation in value

Question 19

The Bretton Woods system called for _______________ exchange rates against the U.S.dollar.

A)variable
B)floating
C)fixed
D)fluctuating
E)market

Question 20

By 1880, most of the world's major trading nations, including Great Britain, Germany, Japan, and the United States, had adopted the

A)diamond standard.
B)gold standard.
C)federal reserve standard.
D)platinum standard.
E)fixed exchange rate system

Question 21

The result of Canada's suspension of the gold standard was

A)the end of the gold standard
B)a trade surplus because of the lower value of the Canadian dollar
C)the final end of mercantilism
D)the raising of trade and convertibility restrictions
E)a collapse in the confidence in the Canadian monetary system

Question 22

Monetary discipline was a central objective of Bretton Woods, and a rigid policy of fixed exchange rates was _______________

A)put into force
B)seen as too inflexible
C)tied to gold
D)tied to inflation
E)tied to monetary supply

Question 23

The IMF Articles of Agreement were heavily influenced by all of the following except

A)the worldwide financial boom.
B)competitive devaluations.
C)trade wars.
D)high unemployment.
E)hyperinflation

Question 24

The Bretton Woods agreement called for a system of fixed exchange rates that would be policed by the

A)World Bank.
B)United Nations.
C)League of Nations.
D)International Monetary Fund.
E)United States

Question 25

______________ are seen as a mechanism for controlling inflation and imposing economic discipline on countries.

A)Fixed exchange rates
B)Floating exchange rates
C)Global exchange rates
D)Transnational exchange rates
E)Managed float systems

Question 26

Most countries abandoned convertibility and the gold standard in 1931 because

A)there was a sharp decline in the amount of gold mined
B)the Bretton Woods Agreement was signed
C)of the cycle of devaluations resulting from the Great Depression
D)of the collapse of the Weimar Republic and the rise of Germany
E)of the preference for a managed float system

Question 27

The gold standard was temporarily abandoned by Canada in

A)1870.
B)1889.
C)1914.
D)1924.
E)1934

Question 28

The ______________ were heavily influenced by the world wide financial collapse, competitive devaluations, trade wars and high employment.

A)World Bank Development Program
B)IMF export assistance
C)fixed parities
D)adjustable parities
E)IMF Articles of Agreement

Question 29

a fixed exchange rate regime imposes

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 wars

Question 30

The major problem with the _______________ was that no multinational institution could stop countries from engaging in competitive devaluations.

A)metal standard
B)federal reserve standard
C)premium standard
D)gold standard
E)global trade system

Question 31

One of the changes that was a result of Canada's return to the gold standard in 1926 was that

A)chartered banks could no longer hold gold in their reserves
B)the price of gold was allowed to fluctuate according to demand and supply
C)gold mining was made a monopoly of the government
D)the Canadian dollar was devalued to reflect the price of gold
E)currency provided by the chartered banks lost its status as legal tender.

Question 32

The Bretton Woods system of fixed exchange rates was established in 1944.The central currency of this system was the

A)French Franc.
B)German Deutsche Mark.
C)U.S.Dollar.
D)British Pound.
E)Swiss Franc

Question 33

The United States returned to the gold standard in

A)1870
B)1919
C)1925
D)1932
E)1934

Question 34

The gold standard broke down in the _______________ as countries engaged in competitive devaluations.

A)1910s
B)1920s
C)1930s
D)1950s
E)1970s

Question 35

In 1944, at the height of World War II, representatives from 44 countries met at _______________ to design a new international monetary system.

A)Richmond, Virginia
B)San Francisco, California
C)Bretton Woods, New Hampshire
D)Morris Plains, New Jersey
E)Yalta, USSR

Question 36

Fixed exchange rates are seen as a mechanism for achieving the following two objectives

A)controlling inflation and economic discipline.
B)controlling unemployment and political discipline.
C)controlling economic stability and increasing gross national product.
D)controlling political stability and economic discipline.
E)controlling currency speculation and trade imbalances

Question 37

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

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

Question 38

In 1944, the dollar remained convertible into gold at _________ per ounce.

A)$22.
B)$29.
C)$35.
D)$37
E)$40.

Question 39

The Bretton Woods agreement called for

A)variable exchange rates.
B)fixed exchange rates.
C)freely floating exchange rates.
D)a set of "managed" floating exchange rates.
E)currency boards

Question 40

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

A)employment.
B)price inflation.
C)gross national product.
D)national standard of living.
E)price deflation

Question 41

During the oil crisis in 1971, the Organization of Petroleum Exporting Countries increased the price of oil by ______.

A)2 times
B)2.5 times
C)3 times
D)4 times
E)5 times

Question 42

The Bretton Woods system had an Achilles' heel: The system could not work if its key currency, the U.S.dollar, was

A)overvalued.
B)undervalued.
C)under speculative attack.
D)subject to a high U.S.inflation rate.
E)not based on the gold standard

Question 43

Most economists trace the break-up of the fixed exchange rate system to

A)the U.S.macroeconomic policy package of 1965-1968.
B)a worldwide recession.
C)Japanese economic policy in the mid 1970s.
D)European economic policy in the 1960s and 1970s.
E)Japanese and German trade surpluses with the U.S.

Question 44

The IMF's system of adjustable parities, under the auspices of the Bretton Woods agreement, allowed for the devaluation of a country's currency of up to _______________ if the IMF agreed that the country's balance of payments is in fundamental disequilibrium.

A)10%
B)15%
C)20%
D)25%
E)30%

Question 45

Which of the following was not one of the main elements of the Jamaica Agreement?

A)The establishment of the International Monetary Fund
B)Floating rates were declared acceptable
C)Total annual IMF quotas were increased to $41 billion
D)Gold was abandoned as a reserve asset
E)Gold was returned to its members at current market rates

Question 46

The International Bank for Reconstruction and Development (IBRD) is the official name for the

A)World Trade Organization.
B)World Bank.
C)International Monetary Fund.
D)Global-Regional Bank.
E)International Development Bank

Question 47

In some cases, a country's attempts to reduce its money supply growth and correct a persistent ______________ deficit could force the country into recession and create high unemployment.

A)balance-of-payments
B)fixed parity
C)floating exchange rate
D)fixed exchange rate
E)bank

Question 48

The term fundamental disequilibrium was not defined in the _______________, but it was intended to apply to countries that had suffered permanent adverse shifts in the demand for their products.

A)IMF Articles of Agreement
B)IMF export assistance
C)Fixed parities
D)Adjustable parities
E)World Bank's Charter

Question 49

The ______________ exchange rate regime that followed the collapse of the fixed exchange rate system was formalized in January 1976 when IMF members met in Jamaica and agreed to the rules for the international system that are in place today.

A)floating
B)quasi-fixed
C)open
D)closed
E)managed

Question 50

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

A)The World Trade Organization.
B)The World Bank.
C)The European National Bank.
D)The International Monetary Fund.
E)United States Treasury

Question 51

In the context of the global monetary system, the IBRD stands for the _______________.

A)International Bank for Rents and Deposits
B)International Bureau for Restraining Devaluations
C)International Bank for Reconstruction and Development
D)International Bureau for Research and Development
E)International Bank Depository for Reconciliation of Deposits

Question 52

Although monetary discipline was a central objective of the Bretton Woods agreement, it was recognized that a _______________ of fixed exchange rates would be too inflexible.

A)relaxed policy
B)rigid policy
C)lending policy
D)balanced policy
E)managed policy

Question 53

The Bretton Woods system of fixed exchange rates collapsed in 1973, and since then most countries have practiced a

A)stepwise fixed rate exchange system.
B)more rigid and enforceable fixed exchange rate system.
C)managed-float system.
D)combination of managed float systems and fixed exchange rate systems.
E)pegged exchange rate system

Question 54

Which of the following statements accurately depicts what happened to the Bretton Woods system of fixed exchange rates?

A)The system never got off the ground, and collapsed in the late 1940s.
B)The system worked well for about a decade, then collapsed in the mid-1950s.
C)The system began to show signs of strain in the 1960s, and finally collapsed in 1973.
D)The system remained in place until the early 1990s when an international conference was convened in Finland to develop a managed float system.
E)The system was replaced by the Jamaica Agreement at the urging of the U.S.

Question 55

While the membership of the IMF had been expanded to 185 countries, contributions have increased from $41 billion to

A)$75 billion.
B)$175 billion.
C)$263 billion.
D)$285 billion
E)$300 billion.

Question 56

Two major features of the International Monetary Fund (IMF) Articles of Agreement fostered flexibility within the monetary system.These features included IMF lending facilities and:

A)IMF export assistance
B)fixed parties
C)a return to the gold standard
D)adjustable parities
E)externally imposed monetary discipline

Question 57

The three main elements of the Jamaica Agreement were

A)the International Monetary Fund was established; gold was abandoned as a reserve asset; and floating rates were declared unacceptable.
B)floating rates were declared acceptable; gold was abandoned as a reserve asset; and total annual IMF quotas were increased to $41 billion.
C)floating rates were declared unacceptable; the International Monetary Fund was abolished; and the World Bank was established.
D)fixed rates were declared acceptable, gold was accepted as a reserve asset; and the total annual IMF quotas were increased to $41 billion.
E)all of these answers are correct

Question 58

Under the _______________, money is raised through bond sales in the international capital market.

A)International Monetary Fund
B)World Bank
C)World Trade Organization
D)International Bank for Reconstruction and Development
E)International Development Agency

Question 59

The initial mission of the World Bank was to

A)help repay the allies war debt
B)help small businesses establish export operations.
C)provide letters of credit on behalf of first-time exporters.
D)provide development loans for developing countries in Asia.
E)help finance the re-building of Europe's economy by providing low-interest loans.

Question 60

A)the dollar was no longer convertible into gold.
B)the U.S.would no longer support the World Bank.
C)the U.S.planned to devalue its currency by 20 percent.
D)the U.S.planned to call for a second Bretton Woods conference.
E)the U.S.would sell its entire gold reserve

Question 61

______________ also adds to the uncertainty surrounding future currency movements that characterizes floating exchange rate regimes.

A)The impracticality of the gold standard
B)Monetary policy autonomy
C)Trade balance Adjustments
D)Speculation
E)Market forces

Question 62

The fall in the value of the U.S.dollar against the German mark between 1985 and 1987 was caused by a combination of

A)government intervention and market forces.
B)high inflation and high unemployment.
C)a trade deficit and high consumer debt.
D)worldwide inflation and high unemployment.
E)the oil embargo and deflation

Question 63

Under a ______________ exchange rate regime, a country's ability to expand or contract its money supply as it sees fit is limited by the need to maintain exchange rate parity.

A)forward
B)fixed
C)narrow
D)floating
E)managed float

Question 64

The case for fixed exchange rates rests on arguments about monetary discipline, speculation, the lack of connection between the trade balance and exchange rates, and _______________.

A)automatic trade balance adjustments
B)uncertainty
C)the impracticality of the gold standard
D)monetary policy autonomy
E)the importance of the U.S.dollar

Question 65

What percent of the IMF's 185 members allow their currency to float freely?

A)15 percent
B)19 percent
C)32 percent
D)41 percent
E)20 percent

Question 66

"Free float" exchange rates are determined by

A)the IMF.
B)market forces.
C)governments.
D)the World Bank.
E)national banks

Question 67

There is some evidence that adopting a pegged exchange rate regime

A)reduces unemployment in a country.
B)moderates inflationary pressure in a country.
C)increases global GNP.
D)decreases global GNP.
E)increases GNI growth within the country

Question 68

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

A)restricted
B)forward
C)fixed
D)floating
E)managed float

Question 69

A IMF study concluded that countries with pegged exchange rate regimes had an average annual inflation rate of ______________, compared with 14 percent for intermediate regimes and 16 percent for floating regimes.

A)4 percent
B)18 percent
C)14 percent
D)8 percent
E)0.8 percent

Question 70

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

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

Question 71

The partial collapse of the European Monetary System occurred in

A)1980.
B)2001.
C)1992.
D)1998.
E)1973

Question 72

Floating exchange rates are determined by

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

Question 73

______ can lead to inflation, which puts downward pressure on fixed exchange rates.

A)Monetary restrictions
B)Monetary standard
C)Sporadic trade balance adjustments
D)Monetary policy control
E)Monetary expansion

Question 74

Pegged exchange rates are popular among many of the world's

A)industrialized nations.
B)largest nations.
C)smaller nations.
D)communist nations.
E)developing nations

Question 75

The case for floating exchange rates has two main elements.These are

A)monetary policy autonomy and automatic trade balance adjustments.
B)sporadic trade balance adjustments and monetary policy autonomy.
C)the impracticality of the gold standard and monetary policy control.
D)monetary policy control and sporadic trade balance adjustments.
E)monetary policy interdependence and autonomic trade balance adjustments

Question 76

The frequency of government interventions in the foreign exchange markets explains why the current system is often referred to as a managed-float system or a

A)functional float system.
B)statutory float system.
C)dirty float system.
D)unwieldy float system.
E)controlled float system

Question 77

Under a floating exchange rate regime, market forces have produced

A)a near fixed U.S.dollar exchange rate.
B)a predictable U.S.dollar exchange rate.
C)a stable U.S.dollar exchange rate.
D)a volatile U.S.dollar exchange rate.
E)a controlled dynamic U.S.dollar exchange rate

Question 78

Advocates of a ________________ exchange rate regime argue that removal of the obligation to maintain exchange rate parity restores monetary control to a government.

A)fixed
B)floating
C)narrow
D)forward
E)managed float

Question 79

Under a pegged exchange rate regime, a country will peg the value of its currency to

A)an index of world currencies maintained by the World Bank.
B)that of a major currency.
C)an index of "peer nation" currencies.
D)an index of its historic currency rates.
E)the index of its major trading partners' currencies

Question 80

Under the Bretton Woods system, if a country developed a permanent deficit in its balance of trade that could not be corrected by domestic policy, the IMF would agree to a

A)currency devaluation.
B)increase in employment.
C)increase in output.
D)increase in interest rates.
E)increased tariffs