Deck 6: International Monetary System

Question 1

SDRs were created in 1969 by the IMF in response to the Triffin Paradox.

Answer 1

True

Question 2

The global economic crisis of 2008 began with the 2007 collapse of mortgage lending in the United States.

Answer 2

True

Question 3

SDRs can be exchanged between countries along with currencies.

Answer 3

True

Question 4

The Bretton Woods Agreement provided for the devaluation of a currency in order to enable countries to manage temporary but serious downturns.

Question 5

The collapse of the Bretton Woods system greatly reduced the influence of the Bretton Woods Institutions in the international market.

Question 6

The SDR is a currency, which constitutes a claim on the IMF.

Question 7

The value of an SDR consists of the value of four of the IMF's biggest members' currencies, which hold equal weight.

Question 8

One of the advantages of the gold standard is that countries were forced to observe strict monetary policies.

Question 9

The Bretton Woods system tied the value of the currencies of all other countries to the U.S.dollar rather than directly to gold.

Question 10

The fall of the gold standard led countries to raise trade barriers, revalue their currencies to compete against one another for export markets, and curtail usage of foreign exchange by their citizens.

Question 11

The basket, or group of currencies that constitute an SDR, is reviewed every five years by the IMF executive board and is based on the currency's role in international trade and finance.

Question 12

The Bretton Woods Agreement established a higher level of economic stability by having a formal set of rules, regulations, and guidelines for decision making.

Question 13

The gold standard dramatically reduced the risk in exchange rates because it established fixed exchange rates between currencies.

Question 14

The devaluation of the dollar by the United States in 1934 forced U.S.firms to export less as the price of their goods and services were higher vis-à-vis other nations.

Question 15

The SDR serves as the unit of account of the IMF and countries borrow from the IMF in SDRs in times of economic need.

Question 16

Under the gold standard, countries could not expand their money supply beyond what was allowed by the gold reserves held in their vaults.

Question 17

Russia's renewed calls for the G20 to replace the U.S.dollar were due to the fact that as the largest holder of U.S.dollar financial assets, it is concerned about the potential inflationary risk of the U.S.Federal Reserve printing money.

Question 18

The Bretton Woods Agreement was a new dollar-based monetary system, which did away with all the provisions of the gold standard.

Question 19

Fixed exchange rates and pegged rates were the two different measures of the exchange rate, which were developed by the United States and the United Kingdom respectively.

Question 20

The adoption of the gold standard led to trade imbalances in the world market.

Question 21

The major significance of the _____ was that it was the first formal institution that governed international monetary systems.

A)Nixon Shock
B)Bretton Woods Agreement
C)Smithsonian Agreement
D)World Trade Organization
E)General Agreement on Tariffs and Trade

Question 22

The Bretton Woods Agreement, with regard to currency conversion, established that:

A)only major economic powers could convert their U.S.dollar holdings into gold.
B)only governments could convert their U.S.dollar holdings into gold.
C)only government accredited business organizations could convert their U.S.dollar holdings into gold.
D)anyone could convert their U.S.dollar holdings into gold.
E)only American businesses could convert their U.S.dollar holdings into gold.

Question 23

Politically, the country whose currency is the reserve currency is perceived as the dominant economic power.

Question 24

Triffin Paradox refers to:

A)the situation where the imposition of a tariff on imports may reduce the relative internal price of that good.
B)the situation where technological progress that increases the efficiency with which a resource is used tends to increase the rate of consumption of that resource.
C)the situation where the United States, the most capital-abundant country in the world, exported labor-intensive commodities and imported capital-intensive commodities.
D)the situation where the more dollars foreign countries held, the less faith they had in the ability of the U.S.government to convert those dollars.
E)a situation during recession wherein when everyone tries to save more money, and it leads to a fall in the aggregate demand which in turn lowers total savings in the population.

Question 25

The Nixon Shock refers to a series of economic decisions made in 1971 that led to the:

A)demise of the World Trade Organization.
B)correction of the Leontief Paradox.
C)establishment of the International Monetary Fund.
D)demise of the Bretton Woods system.
E)demise of the GATT agreement.

Question 26

_____ refers to a main currency that many countries and institutions hold as part of their foreign exchange reserves.

A)Reserve currency
B)Float
C)Trade deficit
D)Exchange rate
E)Bank reserve

Question 27

The World Bank is directed to make loans for projects but never to fund a trade deficit.

Question 28

The Bretton Woods Agreement provided for the devaluation of a currency to enable:

A)countries to lower the prices of goods and services which would boost consumer spending.
B)the United States to increase the concentration of manufacturing industries.
C)countries to competitively manipulate imports and exports.
D)countries to manage temporary but serious downturns.
E)countries to put in effect the best trade practices.

Question 29

Global firms monitor the policies and discussions of the G20 and other economic organizations so that they can identify new opportunities and use their leverage to protect their markets and businesses.

Question 30

_____ refers to the percentage of the assets in cash or another liquid form that banks are required to maintain.

A)Float
B)Trade deficit
C)Exchange rate
D)Reserve currency
E)Bank reserve

Question 31

_____ refers to the price of one currency in terms of a second currency.

A)Spot rate
B)Trade deficit
C)Exchange rate
D)Currency strength
E)Bank reserve

Question 32

Which of the following is true of the gold standard as the international monetary system?

A)The gold standard allowed countries to observe lax monetary policies.
B)The volume of paper currency could not exceed the gold reserves.
C)The countries could just print money to combat economic downturns.
D)The gold standard provided for the devaluation of the currency to prevent the large-scale economic downturn.
E)The gold standard tied the currencies of all the countries to the U.S.dollar.

Question 33

_____ refers to a situation when a currency's value increases or decreases based on demand and supply.

A)Float
B)Trade deficit
C)Exchange rate
D)Reserve currency
E)Bank reserve

Question 34

Trade deficit refers to the:

A)amount of borrowing that a country does from either the private sector or other countries.
B)market value of all final goods and services produced within a country in a given period.
C)accounting record of all monetary transactions between a country and the rest of the world.
D)value of imports being greater than the value of exports.
E)net inflow of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.

Question 35

The _____, which devalued the U.S.dollar to $38 per ounce of gold, increased the value of other countries' currencies to the dollar, and increased the band within which a currency was allowed to float from 1 percent to 2.25 percent.

A)Jamaica Agreement
B)Basel Convention
C)Bonn Agreement
D)Smithsonian Agreement
E)Barcelona Convention

Question 36

Gold standard refers to the:

A)pre-World War I global monetary system that used gold as the basis of international economic exchange.
B)highest rating that is given to an organization for following the international standards of corporate social responsibility.
C)highest rating that is given to a country with regard to the ease with which an organization can set up business in that particular country.
D)best business practices that need to be followed by organizations in the international market.
E)highest standard of transparency that national governments exhibit in their administrative and financial dealings.

Question 37

If a country's currency increases in value, exports will become less expensive, thus making it difficult for other companies to compete effectively against that country's firms.

Question 38

When Bretton Woods was established, John Maynard Keynes, a highly influential British economic thinker, initially proposed creating an international currency called _____ as the main currency.

A)Wocu
B)Ven
C)unitas
D)Bancor
E)dollar

Question 39

The _____ Agreement was a new dollar-based monetary system, which gave countries the flexibility they needed to manage temporary economic setbacks.

A)Jamaica
B)Basel
C)Bonn
D)Smithsonian
E)Bretton Woods

Question 40

The local governments manage many of the projects that the World Bank Group funds in specific countries, but the actual work is typically done by a private sector firm.

Question 41

Which of the following is true of the Group of Five (G5)?

A)Britain, France, Germany, Canada, and the United States were the founding members of this group.
B)The reason for forming the group was the increasing value of the U.S.dollar, which pushed up the prices of U.S.exports, thereby increasing the trade deficit.
C)The European Union was represented in G20 and could host or chair the group.
D)The 1985 agreement of G5 was called the Jamaica Accord.
E)The G5 was expanded in 1989 to include 20 countries.

Question 42

The central purpose of the World Bank is to:

A)promote foreign direct investment into developing countries by insuring investors against political risk.
B)promote sustainable private sector development primarily by financing private sector projects and companies located in the developing world.
C)promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.
D)promote economic and social progress in developing countries by helping raise productivity so that their people may live a better and fuller life.
E)provide facilities for the conciliation and arbitration of investment disputes between member countries and individual investors.

Question 43

Today, the value of an SDR consists of the value of four of the IMF's biggest members' currencies.Which of the following is NOT one of them?

A)The U.S.dollar
B)The Japanese yen
C)The euro
D)The British pound
E)The German Deutsche Mark

Question 44

The _____ removed gold as the primary reserve asset of the IMF.

A)Jamaica Agreement
B)Basel Convention
C)Bonn Agreement
D)Smithsonian Agreement
E)Bretton Woods Agreement

Question 45

Flexible Credit Line (FCL) refers to:

A)a system in which currencies float against one another with governments intervening only to stabilize their currencies at set target exchange rates.
B)a negotiable certificate issued by a U.S.bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S.exchange.
C)a fast-disbursing loan facility with low conditionality aimed at reassuring investors by injecting liquidity.
D)an international monetary reserve asset issued by the IMF.
E)the main currency that many countries and institutions hold as part of their foreign exchange reserves.

Question 46

When Bretton Woods was established, the Americans initially proposed creating an international currency called _____ as the central currency.

A)Wocu
B)Ven
C)unitas
D)Bancor
E)dollar

Question 47

The World Bank consists of two main bodies which are the:

A)Asian Development Bank and EBRD.
B)Inter-American Development Bank and AFDB.
C)World Trade Organization and GATT.
D)International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA).
E)IBRD and the International Development Association (IDA).

Question 48

Which of the following is true for the World Bank and the IMF?

A)They are cooperative institutions that seek to maintain an orderly system of payments and receipts between nations.
B)They are development institutions whose primary responsibility is financing economic development.
C)They are managed and controlled by the United States.
D)They concentrate their efforts on broadening and strengthening the economies of their member nations.
E)They control and manage the financial institutions of the member countries.

Question 49

Which of the following is true for the International Finance Corporation (IFC)?

A)It disburses loans to countries with the purpose of building economies and reducing poverty.
B)It provides interest-free loans to countries with sovereign guarantees.
C)It facilitates sustainable development by improving investments in the private sector.
D)It focuses on improving the foreign direct investment of developing countries.
E)It provides a means for dispute resolution between governments and private investors with the end goal of enhancing the flow of capital.

Question 50

Rapid Credit Facility refers to:

A)a system in which currencies float against one another with governments intervening only to stabilize their currencies at set target exchange rates.
B)a negotiable certificate issued by a U.S.bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S.exchange.
C)an international monetary reserve asset issued by the IMF.
D)the main currency that many countries and institutions hold as part of their foreign exchange reserves.
E)a system of disbursing loans which is front-loaded and has low conditionality.

Question 51

The purpose of the International Monetary Fund is to:

A)promote foreign direct investment into developing countries by insuring investors against political risk.
B)promote sustainable private sector development primarily by financing private sector projects and companies located in the developing world.
C)promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.
D)promote economic and social progress in developing countries by helping raise productivity so that their people may live a better and fuller life.
E)provide facilities for the conciliation and arbitration of investment disputes between member countries and individual investors.

Question 52

Which of the following is true of the economic policies that have to be implemented by a country in order to avail loans by the IMF?

A)Increasing government borrowing
B)Lowering interest rates to stabilize the currency
C)Allowing failing firms to go bankrupt
D)Nationalization of the country's assets
E)Presence of regulated markets

Question 53

The World Bank's first loans were extended during the late 1940s to finance the:

A)infrastructural development of the newly independent countries of Asia.
B)reconstruction of the war-ravaged economies of Western Europe.
C)economic rehabilitation of the famine-struck countries of West Africa.
D)repatriation and the settlement of the Jewish population in Israel.
E)restoration of the financial institutions of North America.

Question 54

The _____ are often called the Bretton Woods Institutions.

A)Asian Development Bank and EBRD
B)Inter-American Development Bank and AFDB
C)World Trade Organization and GATT
D)World Bank and the IMF
E)West African Development Bank and BDEAC

Question 55

Which of the following is true about the Plaza Accord?

A)It focused on the establishment of the European Monetary System (EMS) and the creation of a single currency, the euro.
B)It focused on the formulation of broad supervisory standards and guidelines and recommended statements of best practice in banking supervision.
C)It focused on stabilizing the value of the dollar through collective efforts.
D)It focused on forcing down the value of the U.S.dollar through collective efforts.
E)It focused on establishing the U.S.dollar as the reserve currency through collective efforts.

Question 56

Identify the correct statement about the Louvre Accord.

A)It focused on the establishment of the European Monetary System (EMS) and the creation of a single currency, the euro.
B)It focused on the formulation of broad supervisory standards and guidelines and recommended statements of best practice in banking supervision.
C)It focused on stabilizing the value of the dollar through collective efforts.
D)It focused on forcing down the value of the U.S.dollar through collective efforts.
E)It focused on establishing the U.S.dollar as the reserve currency through collective efforts.

Question 57

Which of the following is true of the Jamaica Agreement?

A)It established the gold standard as the new international monetary system.
B)It established the managed floating exchange rate system as the new international monetary system.
C)It led to the devaluation of the U.S.dollar to $38 per ounce of gold, which increased the value of other countries' currencies to the dollar.
D)It was a series of economic decisions made in 1971 that led to the demise of the Bretton Woods system.
E)It was a series of economic decisions made in 1971 that led to the demise of the GATT agreement.

Question 58

Managed float system of exchange rates refers to a system in which currencies float against one another with:

A)the G8 intervening only to stabilize the currencies at set target exchange rates.
B)governments intervening only to stabilize their currencies at set target exchange rates.
C)big business houses intervening only to stabilize the currencies at set target exchange rates.
D)international financial institutions intervening only to stabilize the currencies at set target exchange rates.
E)the developed countries intervening only to stabilize the currencies at set target exchange rates.

Question 59

A Special Drawing Right (SDR) refers to:

A)an international monetary reserve asset issued by the IMF.
B)the main currency that many countries and institutions hold as part of their foreign exchange reserves.
C)a fast-disbursing loan facility with low conditionality aimed at reassuring investors by injecting liquidity.
D)a system where currencies float against one another with governments intervening only to stabilize their currencies at set target exchange rates.
E)a negotiable certificate issued by a U.S.bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S.exchange.

Question 60

The IMF has been criticized for:

A)ignoring the dynamics of a country that they were dealing with.
B)following a strict policy of non-intervention in the free market.
C)imposing harsh economic sanctions against nations ruled by dictators.
D)prolonged and unnecessary consultations with the affected countries while implementing policies.
E)disbursing loans without any conditions to be fulfilled by the borrowing nation.

Question 61

Which of the following is true for the International Bank for Reconstruction and Development (IBRD)?

A)It disburses loans to countries with the purpose of building economies and reducing poverty.
B)It provides interest-free loans to countries with sovereign guarantees.
C)It facilitates sustainable development by improving investments in the private sector.
D)It focuses on improving the foreign direct investment of developing countries.
E)It provides a means for dispute resolution between governments and private investors with the end goal of enhancing the flow of capital.

Question 62

Which of the following is true for the International Development Association (IDA)?

A)It disburses loans to countries with the purpose of building economies and reducing poverty.
B)It provides interest-free loans to countries with sovereign guarantees.
C)It facilitates sustainable development by improving investments in the private sector.
D)It focuses on improving the foreign direct investment of developing countries.
E)It provides a means for dispute resolution between governments and private investors with the end goal of enhancing the flow of capital.

Question 63

How did the Bretton Woods system help those countries which had less gold in reserve than they had the currency in circulation?

Question 64

What are the strategic themes on which the World Bank is currently focusing?

Question 65

What was the Smithsonian Agreement?

Question 66

Which of the following is an issue on which the World Bank has been criticized?

A)The shifting of the World Bank from being an international welfare organization to a "lender of last resort."
B)The bank's lending policies which often reward macroeconomic inefficiency in the underdeveloped world.
C)The attempt of the bank to focus on local initiatives rather than large projects.
D)It entertains too many alternative perspectives on development, which jeopardizes its main objectives.
E)It has allowed itself to be dominated and controlled by developing nations.

Question 67

The World Bank provides a cheaper funding source for developing countries as most developing countries:

A)have to repay the amount without the WB making adjustments for the rise in inflation.
B)do not have to furnish any guarantee of repayment to avail the WB loans.
C)do not have to pay any interest on the loans disbursed by the WB.
D)have considerably low credit ratings.
E)cannot avail loans from any institution apart from the World Bank.

Question 68

The World Bank's focus on large projects rather than local initiatives has had a negative impact on the social and environmental front.Explain with an example.

Question 69

What are the key issues that the World Bank is focused on in order to achieve the Millennium Development Goals (MDGs)?

Question 70

Soft loans refer to loans which are free of interest with a provision:

A)that the country receiving the loan shall not be eligible to borrow till the repayment of the present loan.
B)that till the time the loan is returned, the lending institution shall control the country's financial institutions.
C)of a 10-year grace period before the country receiving the loan needs to begin repayment.
D)that the country receiving the loan shall pay the whole sum in a single lump sum amount after the end of the grace period.
E)that the country receiving the loan can enter into an agreement with another country to offload its loan.

Question 71

What was the impact of the 2008 global crisis on the IMF?

Question 72

The _____ focuses on improving the foreign direct investment of developing countries.

A)International Bank for Reconstruction and Development
B)International Development Association
C)Multilateral Investment Guarantee Agency
D)International Finance Corporation
E)International Centre for Settlement of Investment Disputes

Question 73

What was the Triffin Paradox?

Question 74

The brainchild of Swiss economics professor Klaus Schwab, _____, is an annual forum that the world's largest businesses attend with senior government officials from around the world and leaders of thought on economic, social, and political issues.

A)Zurich
B)Geneva
C)Davos
D)Bern
E)Basel

Question 75

The Millennium Development Goals refer to the eight international development goals that:

A)all the nongovernmental organizations have pledged to achieve on their own as a protest against government inaction, ineptitude, and indifference.
B)the business world has pledged to plan, work for, and achieve as a part of its ambitious corporate responsibility plan to make a better world.
C)are outlined in the Tenth Five Year Plan by the Indian Planning Commission.
D)all 192 United Nations member states and 23 international organizations have agreed to achieve by the year 2015.
E)the developed countries of the world have undertaken with the avowed aim of bringing about a qualitative change in the life of the people.

Question 76

The bonds issued by the World Bank are rated _____ because they are backed by the member states' shared capital and by borrowers' sovereign guarantees.

A)BBB
B)CCC
C)AA
D)AAA
E)BB

Question 77

What are the main responsibilities of the IMF as envisaged by John Maynard Keynes and Harry Dexter White?

Question 78

Which of the following is true for the International Centre for Settlement of Investment Disputes (ICSID)?

A)It disburses loans to countries with the purpose of building economies and reducing poverty.
B)It provides interest-free loans to countries with sovereign guarantees.
C)It facilitates sustainable development by improving investments in the private sector.
D)It focuses on improving the foreign direct investment of developing countries.
E)It provides a means for dispute resolution between governments and private investors with the end goal of enhancing the flow of capital.

Question 79

What are the conditions that countries have to fulfill in order to be able to borrow form the IMF?

Question 80

What was the significance of the Bretton Woods Agreement in the international monetary market?