Question 1

Which of the following problems with the euro most likely worsened the financial crisis in Greece?
A) excessive flexibility with interest rates
B) cultural disagreements on labor reform
C) lack of uniform fiscal regulation standards
D) unclear policies of the European Central Bank

Accepted Answer

The lack of uniform fiscal regulation standards in the eurozone allowed countries like Greece to engage in unsustainable borrowing and spending practices, which ultimately contributed to the financial crisis. Without consistent regulations and enforcement mechanisms in place, some countries were able to accumulate debt beyond their means, which was a significant factor in the Greek debt crisis.

Question 2

The major objective of the European Central Bank is to ________.
A) set monetary policy for EU countries that adopt the euro
B) ensure that EU interest rates are equal to U.S. rates
C) control taxes as a means of monitoring EU debt
D) reduce spending by EU countries

Accepted Answer

The European Central Bank (ECB) is responsible for setting monetary policy for eurozone countries in order to maintain price stability and support economic growth. The ECB's main objective is to keep inflation below, but close to, 2% over the medium term.

Question 3

The primary result of the Jamaica Agreement was to ________.
A) allow greater exchange-rate flexibility
B) set austerity measures for debt control
C) establish a system based on par values
D) implement fixed exchange rates

Accepted Answer

The Jamaica Agreement of 1976 allowed greater exchange-rate flexibility by replacing the fixed exchange rate system with a system based on floating exchange rates.

Question 4

If inflation in the United States is relatively higher than inflation in Japan,and the Japanese government wants to keep the exchange rate fixed between the yen and the dollar,it should most likely ________.
A) allow its currency to rise against the dollar
B) allow its currency to fall against the dollar
C) increase the supply of yen in the market
D) decrease the supply of yen in the market

Accepted Answer

To keep the exchange rate fixed despite higher inflation in the United States compared to Japan, the Japanese government would need to increase the supply of yen in the market. This action would devalue the yen relative to the dollar, offsetting the inflation differential and helping to maintain the fixed exchange rate.

Question 5

Which of the following best describes the special drawing right?
A) an international reserve asset created to supplement members' existing reserve assets
B) the official currency for international trade established by the World Bank
C) a substitute for the fixed value of gold as determined by currency rates
D) a contribution made by countries to join the IMF

Accepted Answer

The special drawing right (SDR) is an international reserve asset created by the International Monetary Fund (IMF) in 1969 to supplement its member countries' existing reserve assets. It is not an official currency for international trade or a substitute for the fixed value of gold. It is also not a contribution made by countries to join the IMF.

Question 6

The value of the SDR is currently based on the ________.
A) euro
B) U.S. dollar
C) weighted average of four currencies
D) weighted average of six currencies

Accepted Answer

The value of the Special Drawing Rights (SDR) is based on a weighted average of four major currencies: the U.S. dollar, euro, Chinese renminbi, and Japanese yen.

Question 7

________ is a form of locking the value of a country's currency onto another currency.
A) Managed floating
B) Monetarization
C) Dollarization
D) Floating

Accepted Answer

Dollarization is a form of currency pegging, whereby a country chooses to use the US dollar as its official currency, instead of creating and maintaining its own. This means the value of the country's currency is locked onto the value of the US dollar.

Question 8

Which of the following was NOT a result of the Smithsonian Agreement?
A) revaluation of currencies other than the dollar against gold
B) establishment of par values the quota system
C) devaluation of the dollar against gold
D) widening of exchange-rate flexibility

Accepted Answer

The Smithsonian Agreement, reached in 1971, did not involve the establishment of par values the quota system. This agreement primarily focused on revaluing currencies against the dollar, devaluing the dollar against gold, and allowing greater exchange-rate flexibility among the participating countries. The quota system is more closely associated with the International Monetary Fund's operations rather than the specific outcomes of the Smithsonian Agreement.

Question 9

Which of the following countries has a soft peg currency?
A) China
B) Brazil
C) Japan
D) India

Accepted Answer

China has a soft peg currency, also known as a managed float. This means that while their currency (the yuan) does fluctuate on the open market, the government also intervenes to help manage the exchange rate. Brazil has a floating exchange rate, Japan has a floating exchange rate with occasional interventions, and India has a managed float exchange rate.

Question 10

The Bretton Woods Agreement established a system of fixed exchange rates under which each IMF member country set a ________.
A) quota
B) par value
C) gold standard
D) nominal interest rate

Accepted Answer

The Bretton Woods Agreement established a system of fixed exchange rates under which each IMF member country set a par value for its currency. This par value was the exchange rate at which the country committed to buying and selling its currency for gold.

Question 11

Which of the following links together the central banks of the world and acts as a central banker's bank?
A) the IMF
B) the World Bank
C) the BIS
D) the EMU

Accepted Answer

The BIS (Bank for International Settlements) links together the central banks of the world and acts as a central banker's bank. The IMF (International Monetary Fund) and World Bank also play important roles in the global financial system but do not specifically serve as a central bank's bank. The EMU (European Monetary Union) is a group of countries that share a common currency, the euro.

Question 12

The primary objective of the International Monetary Fund is to ________.
A) encourage euro adoption
B) promote exchange rate stability
C) establish a unilateral system of payments
D) foster the power of the foreign exchange market

Accepted Answer

The International Monetary Fund's primary objective is to promote exchange rate stability by providing member countries with financial assistance, guidance on macroeconomic policies, and technical assistance to help stabilize their economies. The other options, such as encouraging euro adoption, establishing a unilateral system of payments, or fostering the power of the foreign exchange market, are not among the IMF's primary objectives.

Question 13

Which type of exchange rate arrangement is based on supply and demand?
A) soft peg
B) hard peg
C) crawling
D) floating

Accepted Answer

A floating exchange rate arrangement is based on supply and demand, as the exchange rate is allowed to fluctuate freely in response to market forces. Soft peg, hard peg, and crawling arrangements involve some form of government intervention or control over the exchange rate.

Question 14

Which EU country has NOT adopted the euro?
A) Germany
B) France
C) Sweden
D) Greece

Accepted Answer

Sweden has not adopted the euro and still uses its own currency, the Swedish krona.

Question 15

Which of the following was part of the stability and growth pact that was required for countries to be part of the European Monetary Union?
A) The annual government budget must be no greater than 3% of GDP.
B) The annual inflation rate must remain within 1.5% of the three best-performing EU countries.
C) The annual government budget deficit could be no greater than 60% of GDP.
D) The annual inflation rate must remain within 5.5% of the four best-performing EU countries.

Accepted Answer

The answer of Which of the following was part of...

Question 16

Why is China most likely considering a greater reliance on the SDR?
A) gains in the foreign exchange market
B) concerns about the value of the U.S. dollars
C) demands to replace the dollar with the euro for reserves
D) requirements by the IMF to make China's currency more flexible

Accepted Answer

China has expressed concerns about the value of the US dollar, which is currently the dominant reserve currency. By relying more on the SDR (Special Drawing Rights), which is a basket of currencies that includes the US dollar, euro, Japanese yen, British pound, and Chinese yuan, China could potentially diversify its reserves and reduce its exposure to the fluctuations of a single currency.

Question 17

What role has the IMF played in the Greek financial crisis of 2010-2011?
A) setting the value of the drachma
B) releasing funds for debt payments
C) demanding the sale of state-owned assets
D) lowering interest rates for international investors

Accepted Answer

The answer of What role has the IMF played in...

Question 18

The global financial crisis has pushed China closer to ________.
A) operating independently from the central banks of other countries
B) discontinuing its relationship with the Bank for International Settlements
C) liberalizing its currency
D) controlling its currency

Accepted Answer

The global financial crisis has increased pressure on China to liberalize its currency as a way to increase its flexibility and resilience to external shocks.

Question 19

Which of the following has the greatest amount of foreign-exchange reserves in the world?
A) China
B) Japan
C) Russia
D) Taiwan

Accepted Answer

According to the World Bank, as of 2021, China has the largest foreign-exchange reserves in the world, totaling over $3 trillion. Japan is the second-largest with around $1.4 trillion, followed by Taiwan with around $570 billion and Russia with around $575 billion.

Question 20

In order to join the IMF,a country must contribute a certain sum of money,called a ________.
A) special drawing right
B) trade balance
C) monetary reserve
D) quota

Accepted Answer

A country must contribute a certain sum of money, called a quota, to join the IMF. This quota determines the country's voting power and the amount of IMF resources it can access.

Quiz 10: The Determination of Exchange Rates

Which of the following problems with the euro most likely worsened the financial crisis in Greece?

The major objective of the European Central Bank is to ________.

The primary result of the Jamaica Agreement was to ________.

If inflation in the United States is relatively higher than inflation in Japan,and the Japanese government wants to keep the exchange rate fixed between the yen and the dollar,it should most likely ________.

Which of the following best describes the special drawing right?

The value of the SDR is currently based on the ________.

________ is a form of locking the value of a country's currency onto another currency.

Which of the following was NOT a result of the Smithsonian Agreement?

Which of the following countries has a soft peg currency?

The Bretton Woods Agreement established a system of fixed exchange rates under which each IMF member country set a ________.

Which of the following links together the central banks of the world and acts as a central banker's bank?

The primary objective of the International Monetary Fund is to ________.

Which type of exchange rate arrangement is based on supply and demand?

Which EU country has NOT adopted the euro?

Which of the following was part of the stability and growth pact that was required for countries to be part of the European Monetary Union?

Why is China most likely considering a greater reliance on the SDR?

What role has the IMF played in the Greek financial crisis of 2010-2011?

The global financial crisis has pushed China closer to ________.

Which of the following has the greatest amount of foreign-exchange reserves in the world?

In order to join the IMF,a country must contribute a certain sum of money,called a ________.