Deck 21: The International Monetary System: Past,present,and Future

Question 1

Which is one of the most serious international economic problems facing the world today?

A)Large volatility and disequilibria in exchange rates and frequent crises in emerging markets
B)The rise of protectionism in developed countries and the high structural unemployment in Western Europe
C)The restructuring problems of Eastern Europe and the former Soviet Union and the deep poverty of some of the poorest developing countries
D)All of the above

Answer 1

D

Question 2

The present international monetary system is a:

A)gold standard
B)flexible exchange rate system
C)managed exchange rate system
D)a target zone system

Answer 2

C

Question 3

Today,roughly how many members of the IMF opt for some form of exchange rate flexibility?

A)10%
B)25%
C)50%
D)90%

Answer 3

C

Question 4

Which of the following statements is false with regard to 11 countries of the European Monetary Union?

A)They have adopted a single currency
B)They have established a single central bank
C)Conduct a common fiscal policy
D)Conduct a single monetary policy

Question 5

Which of the following statements about the gold standard is not true?

A)London was the undisputed center of international trade and finance
B)International trade and international capital flows were mostly unrestricted
C)International liquid capital flows were mostly stabilizing
D)Countries were able to return to pre-war parities after World War I.

Question 6

During the 1960s the U.S.attempted to correct its balance of payments deficits by:

A)ad hoc measures
B)devaluing the dollar
C)deflating the economy
D)restricting imports

Question 7

Balance of payments adjustment under the gold standard is now believed to have occurred primarily through:

A)the price-specie-flow mechanism
B)gold shipments
C)stabilizing short-term capital flows and changes in national incomes
D)free trade

Question 8

The fundamental cause for the collapse of the Bretton Woods System was:

A)lack of confidence
B)inadequate liquidity
C)lack of an adequate adjustment mechanism
D)all of the above

Question 9

The Bretton Woods System was a:

A)gold standard
B)managed floating exchange rate system
C)gold-exchange standard
D)crawling peg system

Question 10

In the wake of the 2008-2009 global financial crisis the following is a potential economic problem facing the world today

A)rising trade protection
B)a large U.S.balance of payments deficit
C)deep poverty in many developing nations
D)all of the above

Question 11

Which of the following was a primary cause of the U.S.balance of payments deficits during the late 1960s?

A)Capital outflows
B)Domestic inflation
C)Increased foreign competition
D)All of the above

Question 12

Which of the following did not represent an evolution of the Bretton Woods System?

A)General Arrangements to Borrow
B)managed floating
C)standby arrangements
D)Special Drawing Rights

Question 13

The International Monetary Fund was initially established to manage

A)the Gold Standard
B)the Gold-Exchange Standard
C)the euro-dollar exchange rate
D)the Dollarization initiative

Question 14

The interwar period was characterized by:

A)the operation of the gold standard
B)chaotic conditions in international trade and finance
C)free trade
D)stabilizing international capital flows

Question 15

On which of the following principles was the Bretton Woods System based on?

A)Fixed exchange rates
B)Currency convertibility
C)Free trade
D)All of the above

Question 16

The global financial crisis of 2008-2009 began as a

A)subprime mortgage crisis in the U.S.
B)exchange rate crisis in Japan
C)corruption crisis in Russia
D)banking crisis in China

Question 17

One reason for the collapse of the Bretton Woods system was
A )the U.S.balance of payments deficit
B)the U.S.balance of payments surplus
C)the depletion of reserve dollars by foreign central banks
D)none of the above

Question 18

The Bretton Woods System:

A)allowed nation to change their par values when facing fundamental disequilibrium
B)allowed nations to change their par values when facing a temporary disequilibrium
C)did not allow nations to change their par exchange rates under any circumstance
D)allowed only deficit nations to change their par values,but not surplus nations

Question 19

The immediate cause for the collapse of the Bretton Woods System was:

A)the expectation that the United States would soon be forced to devalue the dollar
B)the massive flight of liquid capital from the United States
C)the attempt by three small European central banks to convert part of their dollar holdings into gold at the Fed
D)all of the above

Question 20

Which of the following is false with regard to the present international monetary system?

A)Special Drawing Rights are the primary reserve asset
B)Monetary authorities intervene in foreign exchange markets to smooth out excessive short-run fluctuations in exchange rates
C)It was forced on the world by the collapse of the Bretton Woods System
D)It was formally recognized in the Jamaica Accords

Question 21

Sterilization refers to actions taken by central banks

A)to neutralize the effects of balance of payments disequilibria on the money supply.
B)to increase gold inflows when there is a balance of payments surplus.
C)to decrease gold outflows when there is a balance of payments surplus.
D)to cause the exchange rate to appreciate or depreciate.

Question 22

What are the most serious economic problems facing the world today?

Question 23

Explain the Mexican peso currency crisis.
A sharp increase in U.S.interest rate in 1994 reversed U.S.-to-Mexico capital flows,putting pressure on the peso.To try to stop the capital flows,Mexico issued short-term,dollar-denominated securities.However,investors still lacked confidence in the peso,and thus the capital outflow did not stop.Mexico was forced to devalue the peso by 15%,but when this turned out not to be sufficient,the peso was allowed to float,resulting in a rapid depreciation.The U.S.and the IMF provided support to help to stabilize the peso,but Mexico was unable to avoid a severe recession.

Question 24

What is IMF conditionality?

Question 25

Identify the major trade imbalances in the world today,and explain why they are not sustainable and what must happen in the long run.

Question 26

Even with persistent trade deficits,the value of the U.S.dollar continued to rise into the mid-2000s primarily due to

A)strong dollar policies of the U.S.Treasury.
B)falling U.S.fiscal deficits.
C)economic growth in the U.S..
D)expansionary U.S.monetary policy.

Question 27

Under a gold standard

A)there cannot be a balance of payments deficit.
B)there cannot be a balance of payments surplus.
C)balance of payments imbalances should be quickly corrected by gold flows.
D)countries must sterilize all gold transactions.

Question 28

What type of international monetary system(s)operated before WWI,between WWI and WWII,and shortly after WWII?

Question 29

Explain why the establishment of a freely-flexible exchange rate system is unlikely today.

Question 30

What measure have been taken to avoid or minimize future financial crises and strengthen the architecture of the current international financial system?