Deck 10: International Monetary Relations

Question 1

What is a floating exchange rate?

A)A monetary system in which the exchange rates of major currencies retain nearly the same value with respect to the U.S.dollar but are allowed to fluctuate during crises.
B)A monetary system in which the exchange rates of currencies are set at a permanent price of gold.
C)A monetary system in which the exchange rates of major currencies retain nearly the same value with respect to gold but are periodically adjusted during currency crises.
D)A monetary system in which exchange rates are allowed to change according to their market prices.
E)A trading system in which governments do not limit how many goods can be sent between countries.

Answer 1

D

Question 2

What is the exchange rate?

A)The amount of trade passing from one country to another.
B)The price of a national currency relative to other national currencies.
C)The pace of trade that passes from one country to another.
D)The price of gold.
E)The speed with which currency traders buy and sell currencies.

Answer 2

B

Question 3

If a 100-euro pair of Italian shoes cost $200,how much would the shoes cost after the dollar appreciated by 100 percent?

A)$100.
B)$200.
C)$250.
D)$300.
E)$500.

Answer 3

A

Question 4

A currency that has depreciated is one that:

A)has been devalued.
B)has been abandoned in favor of adopting a stronger currency.
C)has lost the loyalty of a country's citizens.
D)is worth more than it was previously when compared to other currencies.
E)has been tied to the price of gold.

Question 5

Monetary policy is the government's ability to:

A)affect the economy by using its power to spend on public works projects.
B)raise tax revenues.
C)regulate imports and exports.
D)affect the economy by manipulating the money supply.
E)borrow and spend.

Question 6

Which of the following do national governments NOT control?

A)The printing of bills.
B)The minting of coins.
C)The choice of currency.
D)The control of the money supply.
E)The setting of a floating exchange rate.

Question 7

In which of the following would a foreign company most likely invest its money?

A)A country with a 5 percent interest rate.
B)A country with a 10 percent interest rate.
C)A country with a 15 percent interest rate.
D)A country with a 20 percent interest rate.
E)A country with a 25 percent interest rate.

Question 8

Which of the following is able to carry out monetary policy?

A)The International Monetary Fund (IMF).
B)The World Bank.
C)The European Central Bank.
D)The World Trade Organization.
E)The North American Free Trade Agreement.

Question 9

If the Argentinean peso depreciates in relation to the dollar,it means that:

A)the Argentinean peso has increased in value relative to the dollar.
B)the Argentinean peso has increased in value relative to all currencies but the dollar.
C)the Argentinean peso has decreased in value relative to the dollar.
D)the Argentinean peso has decreased in value relative to all currencies but the dollar.
E)there is no change in the relative value of the two currencies.

Question 10

Which of the following is NOT a policy that countries have adopted in the past 100 years?

A)Some countries have given up their own currencies and used another country's currency instead.
B)Some countries have given up their own currencies and created a new shared currency.
C)Some countries have used gold as a currency instead of their own paper currencies.
D)Some countries have kept their own currencies but have tied its value to another country's currency.
E)Some countries have kept their own currencies separate from other countries' currencies.

Question 11

Why would a country change its interest rate?

A)Poorer countries peg their interest rates to the exchange rate.
B)Countries try to lure foreign investors with lower interest rates.
C)Lowering interest rates can reduce the country's trade deficit.
D)Increasing interest rates can lead to an appreciation of the currency.
E)The International Monetary Fund (IMF)encourages debtor countries to lower interest rates during currency crises.

Question 12

If a country has adopted a fixed exchange rate,what tool(s)has it lost to battle economic recessions?

A)The ability to spend money.
B)The ability to place tariffs on imports.
C)The ability to lower or raise interest rates through a central bank.
D)The ability to use foreign currency.
E)The ability to allow capitalism to adjust itself.

Question 13

A national monetary system represents a public good because:

A)it is easy to exclude people from using a currency.
B)it only has benefits for a minority of people who buy and sell goods internationally.
C)there are no downsides to providing a national currency.
D)people cannot be excluded from the monetary system or charged for using it.
E)multiple actors in the international system would like control over the monetary supply and only one actor should have it.

Question 14

Which of the following did NOT occur in reaction to the Argentine currency crisis of 2001?

A)The United States lent Argentina large sums of money to keep the government running.
B)Nationwide riots occurred in Argentina.
C)Several different presidents held office in Argentina during a two-week period.
D)Argentina announced the largest default in history.
E)The Argentine government froze bank accounts and citizens could not withdraw dollars.

Question 15

If the Argentinean peso appreciates in relation to the U.S.dollar,it means that:

A)the Argentinean peso has increased in value relative to the dollar.
B)the Argentinean peso has increased in value relative to all currencies but the dollar.
C)the Argentinean peso has decreased in value relative to the dollar.
D)the Argentinean peso has decreased in value relative to all currencies but the dollar.
E)there is no change in the relative value of the two currencies.

Question 16

Why would a country want a depreciated currency?

A)Depreciation makes imports cheaper for consumers.
B)Depreciation makes a country's exports more competitive.
C)Depreciation makes investment more attractive.
D)Depreciation makes foreign loan repayment cheaper.
E)Depreciation makes wages increase.

Question 17

Which of the following is an example of a country using monetary policy?

A)Sweden increases import taxes to raise government revenues.
B)Iceland decreases its interest rate to increase consumer spending.
C)Mexico reduces tariffs to increase imports.
D)China increases spending on hydroelectric projects.
E)Japan borrows from the People's Republic of China for domestic consumption.

Question 18

The gold standard is a monetary system in which:

A)the exchange rate of major currencies retained nearly the same value with respect to the U.S.dollar.
B)the exchange rate of the U.S.dollar was periodically adjusted in response to currency crises in its allies' economies.
C)exchange rates were allowed to change according to their market price.
D)the exchange rates of the major currencies remained fixed to gold.
E)governments used gold instead of paper currencies.

Question 19

What is a fixed exchange rate?

A)A monetary system in which the exchange rates of major currencies retain nearly the same value with respect to the U.S.dollar but are allowed to fluctuate during crises.
B)A monetary system in which the exchange rates of currencies are set at a permanent price of another currency or a precious metal.
C)A monetary system in which the exchange rates of major currencies retain nearly the same value with respect to gold but are periodically adjusted in response to currency crises.
D)A monetary system in which exchange rates are allowed to change according to their market price.
E)A trading system in which governments limit how many goods can be sent between countries.

Question 20

Why did the Argentine currency crisis of 2001 occur?

A)The Argentine president continued to let the peso float in order to maintain political support for his party.
B)The end of the Cold War led to too many imports from former communist countries.
C)Argentina's beef exports increased so much that it led to a shortage of currency.
D)A housing bubble collapsed in Thailand and international investors took their money out of all developing countries' economies.
E)Argentina had pegged the peso to the dollar and could not easily change its policy.

Question 21

Why was the Bretton Woods System a compromise?

A)Countries agreed to go back on a gold standard if the United States forgave their war debts.
B)Countries agreed to go on a gold standard if the U.S.dollar was depreciated before the exchange rates were set.
C)The system provided for periodic adjustments of the price of the U.S.dollar while European countries kept their currencies pegged to a gold standard.
D)The system combined freely floating exchange rates with the creation of the International Monetary Fund to avoid currency crises.
E)The system combined a fixed exchange rate with the flexibility of exchange rate changes during crises.

Question 22

Which global monetary system put the United States at the center,which left Europeans less than enthusiastic about it?

A)The gold standard.
B)The Bretton Woods System.
C)The floating exchange rate system.
D)The fixed peg system.
E)The penny-to-dollars system.

Question 23

What did the classic gold standard era and the Bretton Woods System have in common?

A)The flexibility to adjust exchange rates when currency crises occurred.
B)The world's major powers cooperated in maintaining the system.
C)In both cases a major power (the United States and Soviet Union,respectively)opted out of the system.
D)Both were created in response to devastating wars.
E)Both failed because of a major depression.

Question 24

In the late nineteenth century,which effect of a change in the gold standard would have been desired by the Populists?

A)A change to using the gold standard would have reduced currency instability and encouraged more international trade.
B)A change to using a silver standard would have allowed an appreciation of the dollar,thus helping exporters.
C)A change to using a silver standard would have allowed a devaluation of the dollar,thus helping exporters.
D)A change to using a silver standard would have increased imports and made manufacturing cheaper.
E)Going off the gold standard to a freely floating exchange rate would have allowed the government to deal more effectively with farm crises.

Question 25

What is a commodity standard?

A)A widely accepted model for the production of goods.
B)An agreement on trade that sets the standard for the exchange of goods.
C)When a government uses a paper currency whose value is close to a universal standard unit.
D)When a government uses a good with a value of its own as the basic measure of trade.
E)When governments use a good with a value of its own as the basic underlying monetary unit.

Question 26

Which of the following is most like a commodity-backed paper standard?

A)The Deutsche mark.
B)The British pound.
C)The euro.
D)The classic gold standard.
E)The Bretton Woods System.

Question 27

What is the Bretton Woods System?

A)A monetary system in which the exchange rate of major currencies retained nearly the same value with respect to the U.S.dollar.
B)A monetary system in which the exchange rates of the major currencies remained fixed to gold.
C)A monetary system in which the exchange rate of the U.S.dollar was periodically adjusted in response to currency crises in its allies' economies.
D)A monetary system in which exchange rates were allowed to change according to their market prices.
E)An alliance system that was created to protect Western Europe from a Soviet invasion.

Question 28

What is a national paper currency standard?

A)Governments issue a currency and peg its value to gold.
B)Governments issue a currency and commit to exchanging the currency for a set gold price.
C)Governments issue a currency and use gold as a standard value but do not commit to exchanging gold for the currency.
D)Governments issue a currency and commit to supporting the value of the currency.
E)Governments issue a currency but make no efforts to support the currency.

Question 29

Which of the following is LEAST likely to determine a government's exchange rate policy?

A)Domestic interest groups.
B)Whether the country is democratic or authoritarian.
C)The structure of the economy.
D)The international monetary regime.
E)The amount of the global gold and silver supply.

Question 30

Which of the following are LEAST likely to want to switch to a floating exchange rate?

A)Farmers growing rice in California.
B)Construction workers building homes in South Carolina.
C)Indian companies manufacturing semiconductors for U.S.companies.
D)New York restaurants serving French wine.
E)British bankers lending money to Latin America.

Question 31

Why can interactions in an international monetary regime be like a Prisoner's Dilemma?

A)Each government has an incentive to cheat by pegging its currency;the result is a world where every government wants to peg its currency to someone else.
B)Each government has an incentive to cheat by devaluing its currency,and the result is all governments become worse off because of competitive devaluations.
C)Each government faces a choice between fixing its currency's exchange rate or letting the currency float freely.
D)Each government is trapped by the rules of the international monetary regime.
E)All governments have a clear incentive to create an international government to regulate monetary affairs even though this will make them captive to its rules.

Question 32

Why would a country adopt floating exchange rates?

A)Floating exchange rates allow a government the freedom to pursue its own monetary policies.
B)A floating exchange rate reduces the likelihood of abrupt changes in currency values.
C)Floating exchange rates are beneficial for borrowers of foreign funds.
D)Floating exchange rates make international trade less risky.
E)Floating exchange rates make international travel more convenient.

Question 33

What is one interest all domestic actors share with regard to the national currency?

A)All domestic actors favor a currency that has depreciated.
B)All domestic actors prefer a currency that has appreciated.
C)All domestic actors prefer a floating exchange rate.
D)All domestic actors prefer a fixed exchange rate.
E)All domestic actors favor a currency policy that ensures stable prices.

Question 34

There have been numerous international monetary orders in the past two centuries.Which fact explains why we have had to go through several monetary orders to reach the current one?

A)An international monetary order is an easily provided public good.
B)The global financial world benefits from having regularly changing international monetary orders.
C)Global banks adapt too well to existing monetary orders and take advantage of them.
D)The United Kingdom has rejected each of the previous monetary orders.
E)There is no global government to provide a single global monetary order.

Question 35

Which of the following is an international monetary institution?

A)The World Trade Organization.
B)The classical gold standard.
C)The German government.
D)The British pound.
E)The United States Federal Reserve.

Question 36

Why do we need international monetary regimes?

A)Each country would rather address its own currency problems without outside interference.
B)Countries usually want to create a single global currency.
C)There is no international government to coordinate monetary relations.
D)Governments have an interest in creating a global government.
E)International organizations such as the International Monetary Fund (IMF)can enforce currency standards.

Question 37

During the classic gold standard era,which country was NOT pivotal to maintaining the system?

A)Germany.
B)China.
C)France.
D)Great Britain.
E)Russia.

Question 38

What is NOT a feature of an international monetary regime?

A)It determines whether currency values are fixed.
B)It determines whether currency values are allowed to float.
C)It can determine that there is a mutually accepted benchmark by which values are measured.
D)It determines that all states ought to use the same currency.
E)It can determine that there is not a mutually accepted benchmark by which values are measured.

Question 39

Which of the following events in the history of international monetary regimes came first?

A)The competitive devaluations of the Great Depression.
B)Unsuccessful attempts to reestablish the gold standard.
C)The Bretton Woods monetary system.
D)The classic gold standard.
E)Exchange rates that freely float according to their market price.

Question 40

Why did the Bretton Woods System succeed?

A)Fixing all currencies to the unchanging gold standard caused economic prosperity for all of the major countries.
B)The World Trade Organization facilitated cooperation by providing monetary support during crises.
C)The economic,political,and military interests of Western nations coincided.
D)The monetary system received support from both of the superpowers,the United States and the Soviet Union.
E)The system did not require any major sacrifices from Great Britain,which was its main supporter.

Question 41

Why did the European Crisis of 2011 occur?

A)A handful of European countries borrowed heavily during an economic boom,and the global financial crisis of 2007 made it difficult to pay off those debts.
B)Greece,Ireland,Portugal,and Spain never fully adopted the euro,and their preference for a dual currency made investors wary.
C)Germany wanted to allow countries like Greece,Ireland,Portugal,and Spain to set their own monetary policies.
D)Countries heavily in debt wanted free monetary policy control so they could appreciate the currency in response to the crisis.
E)Countries were too willing to cut social spending programs,which made investors unwilling to keep using the euro.

Question 42

Why do monetary interactions between governments sometimes resemble a Prisoner's Dilemma?

Question 43

Explain how an international monetary system is a public good.

Question 44

What type of country would be the strongest supporter of adopting the euro?

A)A large country with a very protectionist trade policy.
B)A large country with a moderately liberal trade policy.
C)A small country with a very liberal trade policy.
D)A small country with a very protectionist trade policy.
E)A medium-sized country with a moderately protectionist trade policy.

Question 45

What explains why governments choose particular currency arrangements?

Question 46

When and why do governments agree on a particular monetary system?

Question 47

Which of these countries have adopted the U.S.dollar as their currencies?

A)Israel and Egypt.
B)Mexico and Canada.
C)Japan and China.
D)Russia and Georgia.
E)Ecuador and El Salvador.

Question 48

A currency crisis in 1997 and 1998 spread quickly throughout ________,which eventually led to at least two governments falling from the resulting economic recessions.

A)Latin America
B)Europe
C)Africa
D)East Asia
E)Oceania

Question 49

Why is it difficult for a government to avoid a currency crisis?

A)Important companies that have borrowed in foreign currencies can be a powerful lobby in favor of abrupt devaluations of the currency in order to reduce their debts.
B)Exporters clamor for the government to maintain overvalued exchange rates when the currency should be devalued.
C)The common strategy of lowering interest rates to avoid a crisis worsens domestic economic conditions.
D)In democracies,government officials have to worry about the votes of consumers who would be hurt by overvalued exchange rates.
E)International investors are easily alarmed by any sign of instability and are quick to sell off currency.

Question 50

Why did the European currency crisis of 1992 occur?

A)Germany raised its interest rates to combat inflation,which led investors to question whether other European countries would keep their currencies pegged to the Deutsche mark.
B)West and East Germany reunited after the Cold War ended,which led investors to question whether the country could support the Deutsche mark,so they sold the currency and bought U.S.dollars.
C)Sweden raised its interest rates to 500 percent to reduce inflation,which led investors to dump their other currencies and buy Swedish krona.
D)A housing bubble collapsed in Italy,sparking a financial crisis throughout the region.
E)The United States withdrew troops and reduced military spending after the end of the Cold War,which caused Western European economies to shrink.

Question 51

Why would a country use another country's currency instead of its own?

A)This is the first step when a larger country takes over a smaller country.
B)Smaller countries want to reduce the instability of their own currencies.
C)The International Monetary Fund (IMF)forces smaller countries to adopt the U.S.dollar when they have serious currency crises.
D)Larger countries force smaller countries to adopt their currencies in order to facilitate trade.
E)Larger countries want to reduce the possibility of a global currency crisis.

Question 52

Which of the following correctly matches the area of the globe with the common currency shared?

A)Caribbean-euro.
B)South Asia-dollar.
C)West Africa-euro.
D)South America-yen.
E)Oceania-dollar.

Question 53

Why did the Bretton Woods System end?

A)The United States decided to go on the gold standard.
B)The major European countries decided to go on the gold standard.
C)Prime Minister Winston Churchill decided that Great Britain should stop supporting the system.
D)President Richard Nixon decided that the United States could no longer support the system.
E)The major European countries decided to adopt the euro.

Question 54

Which of the following countries has NOT joined the European Monetary Union?

A)The United Kingdom.
B)Germany.
C)France.
D)Italy.
E)Spain.

Question 55

Germany supported the creation of the euro for all of the following reasons EXCEPT:

A)the new European central bank would be located in Germany.
B)the new European central bank would be similar to the German central bank.
C)the new system had controls in place to maintain Germany's commitment to high inflation.
D)the euro would help reduce currency volatility in Europe.
E)other European countries were unlikely to support a Deutsche mark-based currency system.

Question 56

Why did the East Asian Crisis of 1997 occur?

A)East Asian countries were unwilling to borrow enough international money to build sufficient infrastructure.
B)As inflation rose in East Asian countries,investors anticipated devaluations and began to sell off East Asian currencies.
C)Investors were surprised by an abrupt devaluation of its currency by the Thai government and responded by selling the Thai currency.
D)The Suharto dictatorship in Indonesia collapsed,sparking instability in the region.
E)China threatened to take over Taiwan,prompting investors to remove their money from the region.

Question 57

Which of the following events did NOT contribute to the start of the Mexican peso crisis of 1994?

A)Mexico had entered a free-trade agreement with the United States and wanted to keep the peso exchange rate fixed relative to the U.S.dollar.
B)The Mexican government kept the peso strong to improve Mexicans' standard of living before an important election in 1994.
C)A rebellion occurred in southern Mexico.
D)The United States abruptly raised interest rates to reduce inflation.
E)A Mexican ruling party official was assassinated.

Question 58

Which of these steps usually comes first in a currency crisis?

A)The government offers substantially higher interest rates.
B)The government devalues its currency.
C)Investors begin to sell a nation's currency.
D)The government faces some difficulty in maintaining a fixed exchange rate.
E)People lose faith in the government's commitment to keeping a stable exchange rate.

Question 59

Why did European countries adopt the euro?

A)Adoption of the euro was connected to other favorable economic and political joint endeavors.
B)Most European currencies depended on the British pound,but Britain could no longer provide sufficient support for its own currency.
C)Germany could not continue to defend its currency when it reunified after the Cold War.
D)By adopting the euro,France would take Germany's place as the center of European monetary decision making.
E)European countries wanted to connect their currency with Germany's Deutsche mark.

Question 60

How are international monetary affairs "organized" in the absence of an international government?

Question 61

Explain how an international monetary regime depends on interactions among the governments of the world's major economies.

Question 62

How did interests,institutions,and interactions contribute to the success of the Bretton Woods monetary system?

Question 63

How did domestic interests and international conditions affect the adoption of the euro?

Question 64

Why would a country want a currency to float? Why might it instead prefer it to be fixed in value with a nearby nation's currency?

Question 65

Compare and contrast two currency crises of the last 30 years.What lessons should governments draw from these instances?

Question 66

Why do currency crises occur?

Question 67

Imagine that you are the financial adviser to the leader of a new country.The leader wants your advice on how to set up its currency-should it be pegged to a commodity,pegged to the large neighboring nation's currency,or allowed to float? Of what considerations would you want to take into account before giving your advice? What might make you recommend one alternative over another?

Question 68

What are the root causes of the 2011 European monetary crisis? What lessons from previous crises are valuable in understanding this new one?