Deck 36: The International Monetary System: Order or Disorder

Question 1

Higher interest rates in Iceland and the Baltic states in 2008-2009 were necessary to protect the value of their currencies against capital flight.

Answer 1

True

Question 2

Inflation plays a major role in determining whether a currency is appreciating or depreciating.

Answer 2

True

Question 3

In 2007, the value of the American dollar rose relative to the euro.

Answer 3

False

Question 4

Since its inception in January 1999 until 2011, the dollar has consistently appreciated against the euro.

Question 5

The exchange rate is the price of one currency in terms of another.

Question 6

If the price of the dollar changes from 100 Japanese yen to 120 Japanese yen, the dollar has depreciated.

Question 7

The demand for U.S.dollars is derived from foreign demand for U.S.exports.

Question 8

Purchasing power parity explains how the exchange rate will adjust to differences in price levels between two countries.

Question 9

Purchasing power parity is widely accepted as a better explainer of short-run changes in exchange rates than interest rate effects.

Question 10

Exchange rates vis-a-vis the U.S.dollar have changed little over time.

Question 11

When a government intentionally lowers the value of its currency, that is called depreciation.

Question 12

The price of a currency will decrease when quantity demanded is less than quantity supplied.

Question 13

The dollar appreciates against the euro when U.S.demand for European goods increases.

Question 14

The exchange rate states the price, in terms of one currency, at which another currency can be bought.

Question 15

When one currency appreciates, another currency must depreciate.

Question 16

Fixed exchange rates are determined in free markets by the forces of demand and supply.

Question 17

There are at least three exchange rates between every pair of national currencies.

Question 18

The Big Mac index uses prices of a common item to predict long-run changes in exchange rates.

Question 19

The dollar has depreciated if it buys less of a foreign currency.

Question 20

Purchasing power parity explains how exchange rates cause price differences between two countries.

Question 21

A deficit country, like Argentina in 2001, must follow restrictive monetary and fiscal policy in order to maintain a fixed exchange rate.

Question 22

In 2001, the Argentine peso was overvalued relative to the U.S.dollar.

Question 23

When a government influences the exchange rate of its currency, it is said to be practicing "dirty floating."

Question 24

In general, speculators tend to make a floating exchange rate system more stable.

Question 25

The gold standard established fixed exchange rates among all countries.

Question 26

The International Monetary Fund was established to manage the Bretton Woods System.

Question 27

Countries experiencing balance of payments surpluses are usually eager to inflate their economies.

Question 28

A freely floating exchange rate brings some risks to people who are actively engaged in foreign trade.

Question 29

Under the gold standard, a balance of payments surplus leads to an outflow of gold.

Question 30

Interest rate differentials can cause rapid fluctuations in short-run exchange rates.

Question 31

If British government bonds pay a higher interest rate than U.S.government bonds, the dollar should appreciate.

Question 32

A country devaluing its currency reduces the official value of its currency.

Question 33

An overvalued currency, such as the Argentinean peso in 2001, is an indicator of a balance of payments surplus.

Question 34

An economic recession in the United States would shift the demand for foreign currencies outward, that is, increase demand.

Question 35

The gold standard prevented a nation from controlling its domestic economy through monetary policy.

Question 36

Balance of payments deficits arise whenever the exchange rate is set at an artificially high level.

Question 37

A fixed exchange rate system encourages speculators to attack weaker currencies.

Question 38

A strong dollar helps U.S.exporters and hurts importers.

Question 39

The currency of the European Union, the euro, was established as part of the Bretton Woods agreements.

Question 40

The ability of a government to fix its currency's exchange rate is limited by the size of its reserves.

Question 41

On May 12, 2011, it cost U.S.$1.44 to buy one euro.How many euros would U.S.$1 buy?

A)0.69 
B)1.44 
C)1.69 
D)2.44

Question 42

The Big Mac index is a measure of how well the purchasing power parity theory works.

Question 43

One disadvantage of the gold standard was that no nation had control of its domestic monetary policies.

Question 44

If the dollar depreciates, it can be said that

A)foreign countries no longer respect the United States.
B)it falls in value within the United States.
C)it takes fewer dollars to buy foreign currencies.
D)other currencies appreciate.

Question 45

Appreciation is the term used to describe

A)the conversion of one currency into another currency in the free market 
B)a reduction in the official value of a currency.
C)the upward movement of currencies in a free market.
D)an increase in the official value of a currency.

Question 46

From the beginning of 2007, the value of the U.S.dollar

A)dropped sharply against major currencies.
B)increased mildly against major currencies.
C)remained stable relative to major currencies.
D)fluctuated with no major trend against major currencies.

Question 47

Is it possible for a currency to appreciate relative to one currency, and depreciate relative to another?

A)No, a currency rises or falls against all currencies.
B)No, this could happen only under the gold standard.
C)Yes, but only if all governments agree on the new rates.
D)Yes, this is possible in a world of floating rates.

Question 48

There is an exchange rate between

A)every pair of currencies.
B)the world's major currencies but not between the currencies of less-developed countries.
C)currencies on a fixed-exchange rate system but not for those on a floating-rate system.
D)the currencies of the European Union but not for the nations outside the European Union.

Question 49

The exchange rate

A)is the ratio of two countries' GDPs.
B)is the rate at which one country's money is flowing into another country.
C)states the price of one currency in terms of another currency.
D)is closely related to the concept of absolute advantage.

Question 50

On May 12, 2011, it cost U.S.$.04 to buy one Russian ruble.How many Russian rubles would U.S.$1 buy?

A)40 
B)33 
C)25 
D)14

Question 51

At any given moment there is one exchange rate

A)for currencies in the free world.
B)between every pair of currencies.
C)for all the world's currencies.
D)established by the Federal Reserve Board.

Question 52

On May 12, 2011, it cost U.S.$1.64 to buy one British pound.How many British pounds would U.S.$1 buy?

A)0.56 
B)0.61 
C)1.64 
D)2.64

Question 53

On May 12, 2011 the U.S.dollar was worth 0.70 euros.How many dollars did it take to buy one euro?

A)0.70 
B)1.43 
C)1.70 
D)2.70

Question 54

The exchange rate is

A)another term for "interest rate." 
B)another term for "growth rate." 
C)the rate at which goods trade for one another across international borders.
D)the price of one currency in terms of another currency.

Question 55

In 2007, the value of the U.S.dollar

A)increased relative to the euro.
B)decreased relative to the euro.
C)remained stable relative to the euro.
D)was equal to the value of the euro.

Question 56

On May 12, 2011, the U.S.dollar was worth 28 Russian rubles.How many U.S.dollars did it take to buy one Russian ruble?

A)0.01 
B)0.04 
C)0.28 
D)0.40

Question 57

On May 12, 2011, the U.S.dollar was worth 0.61 British pounds.How many dollars did it take to buy one British pound?

A)1.19 
B)1.61 
C)1.64 
D)2.19

Question 58

If the dollar appreciates, it can be said that

A)foreigners respect the United States more.
B)it increases in value within the United States.
C)other currencies depreciate.
D)it takes more dollars to buy foreign currencies.

Question 59

The purchasing power parity theory of exchange rate determination holds that the exchange rate between any two national currencies is fixed to reflect differences in the price levels in the two countries.

Question 60

When goods or services cross international borders

A)countries must ship gold to make payment.
B)money must generally move in the opposite direction.
C)a future shipment must be made to offset the current purchase.
D)payment must be made in another good, using barter.

Question 61

Americans needing foreign currencies get those currencies from a bank.The ultimate source of these currencies is

A)U.S.investments abroad.
B)U.S.exports to foreign countries.
C)U.S.imports of foreign goods and services.
D)the International Monetary Fund.

Question 62

Which of the following companies would gain from foreign currency depreciation?

A)companies which borrow in foreign currency.
B)companies which export goods and services.
C)companies which invest in the foreign equity markets.
D)companies which buy bonds issued by the foreign government.

Question 63

On May 11, 2011, it cost 11.601 Mexican pesos to buy one U.S.dollar.How many U.S.dollars did it take to buy a Mexican peso?

A)$11.11 
B)$10.82 
C)$8.92 
D)$0.09

Question 64

If a currency decreases in value as a result of government decree rather than market forces, the process is known as

A)devaluation.
B)depreciation.
C)deflation.
D)degeneration.

Question 65

If a currency decreases in value in response to market forces, this process is known as

A)devaluation.
B)depreciation.
C)deflation.
D)degeneration.

Question 66

If the dollar appreciates relative to other currencies, which of the following is true?

A)It takes more foreign currency to buy a dollar.
B)It takes more dollars to buy a foreign currency.
C)U.S.exports will increase.
D)Foreign purchases of U.S.goods will increase.

Question 67

If the quantity of euro demanded were greater than the quantity supplied, then the price of the

A)euro would rise.
B)euro would fall.
C)dollar would rise.
D)euro would be in equilibrium.

Question 68

Exchange rates determined by the forces of demand and supply are called

A)fixed exchange rates.
B)floating exchange rates.
C)equilibrium exchange rates.
D)dirty exchange rates.

Question 69

The rate at which one currency is traded for another is called a(n)

A)prime rate.
B)trade rate.
C)exchange rate.
D)money rate.

Question 70

The demand for euros would come from

A)American exports to Europe.
B)European demand for U.S.government bonds.
C)American demand for European real estate.
D)All of the above are correct.

Question 71

On June 3, 2005, it cost 1.22 U.S.dollars to buy one euro.How many euros did it take to buy one U.S.dollar?

A)0.82 euros 
B)0.88 euros 
C)1.22 euros 
D)88 euros

Question 72

The currency value of Agraria is set by government decree.Which of the following happens when the government alters the exchange rate so that its currency can buy more units of foreign currency?

A)Reflation 
B)Devaluation 
C)Appreciation 
D)Revaluation

Question 73

Who among the following is most likely to favor an appreciation of the U.S.dollar?

A)a German professor visiting Chicago 
B)an American farmer who depends on exports 
C)an American professor on a tour of Austrian universities 
D)Disney World in Orlando, Florida, a popular destination for foreign tourists

Question 74

If a currency increases in value as a result of government decree rather than market forces, the process is known as

A)reflation.
B)revaluation.
C)appreciation.
D)value-added.

Question 75

The supply of euros would come from

A)American demand for European real estate.
B)European demand for U.S.government bonds.
C)Americans vacationing in Barcelona, Spain.
D)French supplies of wine to U.S.importers.

Question 76

If a currency increases in value in response to market forces, this process is known as

A)reflation.
B)revaluation.
C)appreciation.
D)value-added.

Question 77

If the quantity supplied of euro were greater than the quantity demanded, then the price of the

A)euro would rise.
B)euro would fall.
C)dollar would fall.
D)euro would be in equilibrium.

Question 78

If market forces change the exchange rate value of one dollar from 80 yen to 83.25 yen, then the dollar has

A)appreciated.
B)depreciated.
C)been revalued.
D)been devalued.

Question 79

Why does anyone demand foreign currency?

A)international trade in goods and services 
B)international trade in financial assets 
C)purchases of physical assets overseas 
D)All of the above are correct.

Question 80

Can the U.S.dollar and the European euro both appreciate relative to each other?

A)Yes, both countries can gain in this manner.
B)Yes, provided the central banks permit it.
C)No, unless there is a system of fixed exchange rates.
D)No, if one currency appreciates, the other must depreciate.