Deck 6: International Monetary Relations

Question 1

The current account includes

A) direct investment assets.
B) monetary reserves.
C) investment liabilities.
D) exports and imports.

Answer 1

D

Question 2

Since the 1970s, in regard to the current account, the United States has generally had

A) a deficit
B) a surplus
C) a balance
D) volatility

Answer 2

A

Question 3

The financial account includes

A) the capital account.
B) secondary income.
C) portfolio investment.
D) services trade.

Answer 3

C

Question 4

Orthodox liberals advise governments to deal with balance of payments deficits with

A) tariffs.
B) monetary policy.
C) currency devaluation.
D) financing.

Question 5

When a state lowers the official value of its currency, it is engaging in

A) depreciation.
B) appreciation.
C) revaluation.
D) devaluation.

Question 6

In the interwar period (between World Wars I and II), the world had

A) a gold standard and floating exchange rates.
B) a gold exchange standard and fixed exchange rates.
C) only floating exchange rates.
D) only a gold standard.

Question 7

The type of monetary regime arranged at the Bretton Woods conference is best described as:

A) a managed floating regime.
B) a gold exchange standard.
C) a gold standard.
D) a free floating regime.

Question 8

Which country has the second most votes in the IMF?

A) Japan
B) U.S.
C) U.K.
D) China

Question 9

The Triffin Dilemma in regard to reserve assets refers to conflict between

A) the need to devalue the U.S. dollar, and the inability to do so.
B) the liquidity and adjustment functions.
C) the confidence and adjustment functions.
D) the liquidity and confidence functions.

Question 10

The emergence of the Eurocurrency market is linked to what event:

A) the election of Pres. Jimmy Carter in the U.S.
B) the détente period of the Cold War
C) the entry of the UK into the EU
D) the OPEC oil crisis

Question 11

SDRs

A) are allocated mainly to countries that have serious balance of payments problems.
B) account for a large share of global reserve assets today.
C) are allocated in proportion to a country's IMF quota.
D) have a value determined by a basket of 3 currencies today.

Question 12

The "Unholy Trinity" today involves a trade-off between:

A) fixed exchange rates and policy autonomy.
B) flexible exchange rates and policy autonomy
C) private capital mobility and policy autonomy.
D) none of the above.

Question 13

Misalignment refers to exchange rates that have

A) overappreciated
B) underappreciated
C) moved from their market value
D) moved from their gold-pegged value

Question 14

Eurocurrencies are

A) national currencies located in banks outside the home country.
B) held by countries that have replaced their national currencies with the euro.
C) national currencies that must be held in European banks.
D) national currencies closely linked with the formation of the European Union.

Question 15

The origins of the European Union date from what decade

A) 1940s
B) 1950s
C) 1960s
D) 1970s

Question 16

The financial account of the balance of payments includes income from all exports and imports.

Question 17

Depreciation refers to the market-driven decrease in a currency's price.

Question 18

IMF votes on most important decisions such as changing the IMF quotas give an effective veto to the United States, China, and Japan.

Question 19

The Triffin Dilemma refers to the problem that the liquidity and adjustment functions of the key currency in a monetary regime eventually come into conflict.

Question 20

The Group of 24 includes finance ministers or central bank governors from 24 major DCs and LDCs.

Question 21

Under the current monetary regime, volatility of currency rates and misalignment of currency rates both occur regularly.

Question 22

An "optimum currency area" includes labor mobility.

Question 23

The______________ records the net sum of debit and credit transactions that residents, firms, and governments have with the rest of the world over a one-year period.

Question 24

A government uses ___________________ to deal with a balance of payments deficit by lowering government spending and raising taxes.

Question 25

In the ___________________ regime, central banks held their reserves in gold and major currencies, and each central bank fixed its currency exchange rate to a key currency with a fixed gold price.

Question 26

The IMF ensures that borrowers must agree to adopt specific economic policies through ______________ on its loans.

Question 27

______________ refers to the ease with which an asset can be used in making payments.

Question 28

The______________ dilemma refers to the fact that the liquidity and confidence functions of a key currency can come into conflict.

Question 29

National currencies traded and deposited in banks outside the home country are called ________________.

Question 30

What options does a country have in dealing with a balance of payments deficit? Explore the tradeoffs between the monetarist and Keynesian approaches.

Question 31

Do you think the U.S. deficit and foreign debt problems pose an economic and geopolitical threat to the country and to global finance? Why does the United States have these persistent problems?

Question 32

Why was the Bretton Woods monetary regime unsustainable, and what role did the Triffin Dilemma and the eurocurrency market have in the breakdown of the regime?

Question 33

What was the reason for creating the SDR, and what role does it play in stabilizing the global monetary system?

Question 34

What have the IMF's functions been in the global monetary regime? How did the shift from U.S. to multilateral management, and from pegged to floating exchange rates affect the role of the IMF in the global monetary regime?

Question 35

What is the "Unholy Trinity"? Select a case study country and examine its macroeconomic indicators including the exchange rate over the past decade. How does the evidence illustrate the dilemmas inherent in the Trinity?

Question 36

How much influence have DCs and LDCs had in IMF decision-making? Do you think this is likely to change in the future and why?

Question 37

Why was the euro zone formed, and what are its current challenges?

Question 38

Are the euro, the Chinese renminbi, and/or the SDR likely to pose a challenge to the U.S. dollar as the key international currency? Explain your answers.

Question 39

Explain the concept of the US's "exorbitant privilege" and what it entails. Do think it will fade over time? Why or why not? What would be the potential causes and effects of its demise?