Deck 7: The International Monetary System and the Balance of Payments

Question 1

Under the gold standard, when the United States and the United Kingdom exchanged their currencies at a rate of the $20.67/₤£4.247, the exchange rate was a ________.

A) floating rate
B) fixed exchange rate
C) par value
D) pegged rate

Answer 1

B

Question 2

Between 1821 and 1918, why was the international monetary system also known as the sterling-based gold standard?

A) economic dominance of the United Kingdom
B) fluctuating gold value in the United States
C) reliance on German banking systems
D) expansion in the United States

Answer 2

A

Question 3

Why was the gold standard suspended during World War I?

A) Transporting gold became unsafe and complicated.
B) Normal commercial transactions between countries ceased.
C) Countries implemented mercantilism by hoarding gold.
D) The Bank of England could not maintain the pound's value.

Answer 3

B

Question 4

Under the gold standard ________.

A) currency values were determined by supply and demand
B) countries agreed to buy or sell their paper currencies for gold
C) countries were free to adopt any nation's exchange rate system
D) the dollar's value was allowed to fall on currency markets

Question 5

When the gold standard ended ________.

A) currency values were determined by supply and demand
B) central banks sometimes manipulated exchange rates
C) countries agreed to buy or sell their paper currencies for gold
D) countries were free to adopt whatever exchange rate system best met their own requirements
E) the dollar's value was allowed to fall on currency markets

Question 6

What was created by the gold standard?

A) fixed exchange rate system
B) floating exchange rate system
C) global accounting standards
D) export and import regulations

Question 7

When did the sterling-based gold standard begin to unravel?

A) during World War I
B) during World War II
C) during the Civil War
D) during the Napoleonic Wars

Question 8

An ________ is the price of one currency in terms of a second currency.

A) export rate
B) exchange rate
C) excise tax rate
D) interest payment

Question 9

When firms had faith in a country's pledge to exchange its currency for gold, how did most prefer to be paid?

A) in gold
B) in paper currency
C) in credit
D) in U.S. dollars

Question 10

The ________ refers to an international monetary system in which countries agreed to buy or sell their paper currencies in exchange for gold on the request of any individual or firm and to allow the free export of gold.

A) foreign exchange system
B) free market system
C) gold standard
D) mercantilism

Question 11

Which term refers to linking a currency value to the value of gold?

A) exchanging
B) pegging
C) pledging
D) standardizing

Question 12

Under a ________, the price of a given currency does not change relative to other currency.

A) free trade agreement
B) fixed exchange rate system
C) floating exchange rate system
D) balance of payment system

Question 13

The Bank of England no longer redeemed British paper currency for gold at par value ________.

A) in the 1920s
B) in the 1850s
C) before 1821
D) after 1931

Question 14

From 1821 until the end of World War I in 1918, the most important currency in international commerce was the ________.

A) U.S. dollar
B) British pound sterling
C) German deutschmark
D) French franc

Question 15

Why does the international monetary system exist?

A) because most countries have their own currencies
B) to control interest rates on international business loans
C) to avoid monetary crises from becoming global
D) because it sets the price of a given currency

Question 16

The term ________ means that a currency's value is determined by the forces of supply and demand.

A) pegged
B) par value
C) float
D) market exchange

Question 17

Which country was the first to adopt the gold standard?

A) United Kingdom
B) Russia
C) France
D) Germany

Question 18

The ________ establishes the rules by which countries value and exchange their currencies.

A) international monetary system
B) OECD
C) World Bank
D) Federal Reserve

Question 19

A ________ refers to the official price of a currency in terms of gold.

A) fixed exchange rate
B) pegged rate
C) par value
D) currency rate

Question 20

The international monetary system provides a mechanism for ________.

A) establishing global accounting standards
B) enforcing the payment of importing tariffs and fees
C) correcting imbalances between a country's international payments and its receipts
D) increasing a country's paper currency value in comparison to the global gold standard

Question 21

What is the primary purpose of the Multilateral Investment Guarantee Agency?

A) make soft loans
B) make hard loans
C) promote FDI in developing countries
D) provide investors with political risk insurance

Question 22

Currencies that can be freely exchanged for other currencies without legal restrictions are called ________.

A) floating currencies
B) fixed currencies
C) convertible currencies
D) free currencies

Question 23

What was created by the Bretton Woods system?

A) a fixed exchange rate system
B) a floating exchange rate system
C) an accounting system
D) an export system

Question 24

The International Bank for Reconstruction and Development is also known as the ________.

A) World Bank
B) International Monetary Fund
C) Organization for Economic Cooperation and Development
D) Bretton Woods Treaty

Question 25

Special drawing rights, SDRs, are sometimes called ________.

A) gold-sterling
B) paper currency
C) paper gold
D) credit

Question 26

The World Bank and the International Monetary Fund were created as part of the ________.

A) Jamaica Accord
B) Louvre Accord
C) Plaza Agreement
D) Bretton Woods Agreement

Question 27

The leader of Country X has decided that the nation should join the IMF and has agreed to the rules and regulations of the IMF. Now Country X must ________.

A) pay a quota to the IMF
B) locate a sponsoring IMF country
C) pay each of the IMF members an entrance fee
D) agree to an IMF investigation of government spending

Question 28

What was the initial goal of the World Bank?

A) administer the gold standard
B) hold financial reserves for all countries
C) finance reconstruction of war-torn economies
D) provide capital for corporate expansion activities

Question 29

Country X has requested and received a loan from the World Bank. Country X may not use the money to finance ________.

A) new railroads
B) harbor facilities
C) national highways
D) trade deficits

Question 30

Which currency played a central role in the Bretton Woods system?

A) British pound
B) German mark
C) Japanese yen
D) U.S. dollar

Question 31

What determines a country's borrowing power from the IMF?

A) country size
B) loan size
C) a quota
D) aggregate demand

Question 32

What did the Bretton Woods conferees agree to do in 1944?

A) end World War II
B) renew the gold standard on a greatly modified basis
C) adhere to the sterling standard
D) promote a foreign exchange market

Question 33

________ are those that bear significant risk of not being repaid.

A) Hard loans
B) Soft loans
C) Development loans
D) Reconstruction loans

Question 34

Which country holds the largest bloc of votes in the World Bank?

A) the United Kingdom
B) the United States
C) Germany
D) Japan

Question 35

The Bretton Woods conference sought to do which of the following?

A) end the gold standard
B) create the International Monetary Fund
C) terminate the International Bank for Reconstruction and Development
D) provide no-interest capital loans to emerging economies around the world

Question 36

What is the primary purpose of the International Finance Corporation?

A) make soft loans
B) make hard loans
C) promote private sector development in developing countries
D) provide political risk insurance to MNEs operating in emerging economies

Question 37

Which country controls the largest bloc of votes in the IMF?

A) the United Kingdom
B) the United States
C) Germany
D) Japan

Question 38

The interest rate on soft loans is traditionally set at ________.

A) 0 percent to very low
B) 5 to 10 percent
C) 11 to 20 percent
D) 21 to 25 percent

Question 39

Which of the following was created by the Bretton Woods Agreement to facilitate the expansion and balanced growth of international trade and to promote exchange stability?

A) World Bank
B) Inter-American Development Bank
C) International Monetary Fund
D) Multilateral Investment Guarantee Agency

Question 40

A country can borrow up to ________ percent of its quota from the IMF?

A) 25
B) 40
C) 70
D) 90

Question 41

The international monetary system provides a means of exchanging currencies in international business transactions.

Question 42

The ________ was created to manage currency relationships within the European Union.

A) European Monetary System
B) World Bank
C) Brady Plan
D) Baker Plan

Question 43

Under a floating exchange rate system, what determines the exchange rate for each currency?

A) par value
B) gold standard
C) pegged value
D) supply and demand

Question 44

What occurred at the Louvre Accord?

A) Central banks allowed the dollar's value to fall.
B) The value of the U.S. dollar was stabilized.
C) EU members adopted a common currency.
D) An exchange rate mechanism was established.

Question 45

What term recognizes that in addition to private sector market forces, exchange rates are also affected by central banks buying or selling currencies on the foreign-exchange market?

A) par value
B) flexibility
C) managed float
D) special drawing rights

Question 46

The gold standard was a monetary system whereby countries agreed to buy or sell their paper currencies in exchange for gold.

Question 47

What decision was made at the Smithsonian Conference in 1971?

A) implement a flexible exchange rate system
B) restore the fixed exchange rate system
C) eliminate the World Bank
D) create the IMF

Question 48

AeroTech, a German firm, deposits a check in a U.S. bank. The deposit will be recorded as a ________.

A) capital outflow in the U.S. BOP
B) capital inflow in the U.S. BOP
C) unilateral debit in the United States
D) credit to Germany's BOP

Question 49

Membership in the IMF is limited to democratic nations only.

Question 50

Country X paid a quota to the IMF worth the equivalent of $50 million. Now, Country X needs to borrow money from the IMF. What is the maximum amount that Country X may borrow?

A) $7.5 million
B) $12.5 million
C) $25 million
D) $100 million

Question 51

What resulted from the Smithsonian Conference?

A) the euro was identified as the benchmark currency
B) currencies were allowed to fluctuate freely
C) the U.S. dollar was devalued
D) the SDR was created

Question 52

Which of the following was a key element of the Baker Plan?

A) prohibiting debt
B) permitting hyperinflation
C) reducing debts of developed countries
D) continuing to lend to debtor countries

Question 53

Which of the following is calculated daily as a weighted average of the market value of four major currencies?

A) special drawing rights
B) dollar averaging
C) exchange rate standard
D) par value

Question 54

Under the Jamaica Agreement ________.

A) currency values were determined by supply and demand
B) countries agreed to buy or sell their paper currencies for gold
C) countries were free to adopt any exchange rate system
D) the dollar's value was allowed to fall on currency markets

Question 55

Executives at Octagon Telecom, a global telecommunications firm, are considering investing in a telephone company located in Rwanda. However, many stockholders have expressed concerns about the political risk involved in such an investment. Which of the following would most likely provide political risk insurance to Octagon?

A) International Development Association
B) African Development Bank
C) International Monetary Fund
D) Multilateral Investment Guarantee Agency

Question 56

Under a managed float ________.

A) currency values are determined only by private sector forces
B) central banks sometime manipulate exchange rates
C) countries agree to exchange paper currencies for gold
D) countries may adopt any exchange rate system

Question 57

Which agreement resulted in each country adopting its own exchange rate system?

A) Bretton Woods
B) Smithsonian
C) Jamaica
D) Genoa

Question 58

Country X, a member of the IMF, needs to borrow money from the IMF. The IMF has agreed to the loan if Country X agrees to close insolvent merchant banks and lower tariffs on many goods. Which term refers to the restrictions imposed on the loan?

A) IMF hard loan details
B) World Bank pegging
C) IMF conditionality
D) BOP provisions

Question 59

A convertible currency is one that can be freely exchanged for other currencies without legal restrictions.

Question 60

Dirty float is another term for ________.

A) flexible float
B) managed float
C) illegal exchange
D) convertible currency

Question 61

During the gold standard, most firms preferred their payment in gold rather than in currency.

Question 62

The initial goal of the World Bank was to help finance the reconstruction of Europe.

Question 63

A member country of the IMF may borrow up to 25 percent of its quota from the IMF.

Question 64

During the gold standard, the international monetary system was also called the dollar-based gold standard.

Question 65

London became a major international financial center under the gold standard because of the international trust in the British currency.

Question 66

Under Bretton Woods, the euro became the vehicle of choice for settling most international transactions.

Question 67

The gold standard effectively created a floating exchange rate system.

Question 68

The Smithsonian agreement established a fixed exchange rate system.

Question 69

Once the gold standard was suspended, it was never considered again for use in the international monetary system.

Question 70

Under the Bretton Woods system, all countries agreed to peg the value of their currency to the U.S. dollar.

Question 71

The International Finance Corporation is charged with promoting the development of the private sector in developing countries.

Question 72

Truman officially ended the Bretton Woods system when he announced that the United States would no longer redeem gold at $35 per ounce.

Question 73

The World Bank follows what is called a soft loan policy.

Question 74

Japan holds the largest bloc of votes in the World Bank.

Question 75

Gold was used as a medium of international exchange in ancient times because of its strength and value.

Question 76

The country members of the World Bank each have one equal vote in decisions.

Question 77

Quotas to the IMF must be paid in a combination of gold and a country's own currency.

Question 78

The World Bank can only make a loan if there is a reasonable expectation that it will be repaid.

Question 79

The Bretton Woods system did not allow for the adjustment of a currency's par value.

Question 80

Because countries pegged their currencies to gold, the gold standard was a fixed exchange rate system.