Question 1

In 1974 the United States revoked a 41-year ban on U.S. citizen's ownership of gold.

Accepted Answer

The ban on U.S. citizen's ownership of gold was lifted in 1974, ending a 41-year period where it was illegal to possess gold as a form of currency or commodity.

Question 2

In 1975 the official price of gold was abolished as the unit of account for the international monetary system. As a result, gold was demonetized as an international reserve asset.

Accepted Answer

The official price of gold was indeed abolished as the unit of account for the international monetary system in 1975, leading to gold being demonetized as an international reserve asset.

Question 3

When granting loans to financially troubled nations, the International Monetary Fund requires some degree of conditionality, meaning that the borrowing nation must agree to implement economic policies as mandated by the IMF.

Accepted Answer

This is true. The conditionality is typically aimed at improving the borrowing nation's fiscal and monetary policies and reducing its budget deficit. The IMF may require the borrowing nation to implement austerity measures, such as reducing government spending and increasing taxes, in exchange for the loan.

Question 4

Because the value of the SDR is tied directly to the value of the U.S. dollar, a 10 percent dollar depreciation would result in a 10 percent decrease in the SDR's value.

Accepted Answer

The answer of Because the value of the SDR is...

Question 5

Gold constitutes the largest component of the world's international reserves.

Accepted Answer

According to recent data from the International Monetary Fund (IMF), gold comprises only around 8% of the world's international reserves. The largest component is actually the US dollar, followed by the euro and the Japanese yen.

Question 6

Foreign currencies constitute the smallest component of the world's international reserves.

Accepted Answer

This statement is false. Foreign currencies are actually one of the largest components of the world's international reserves, along with gold and special drawing rights (SDRs).

Question 7

The International Monetary Fund has sometimes demanded that financially-troubled nations, that borrow from the IMF, undergo austerity programs including slashing of public spending and private consumption.

Accepted Answer

This statement is true as the IMF has often required countries to implement austerity measures as a condition for receiving financial assistance. These measures may include reducing government spending, increasing taxes, and cutting social welfare programs.

Question 8

The SDR has replaced the dollar, yen, and mark as the key asset of the international financial system.

Accepted Answer

This statement is not true. The SDR (Special Drawing Right) is a supplement to existing reserve currencies, including the dollar, yen, and euro, and is not intended to replace them. While the International Monetary Fund (IMF) promotes the use of SDRs in certain transactions and reserves, it is not the key asset of the international financial system.

Question 9

A main purpose of the International Monetary Fund is to make loans of foreign currencies to member countries which are experiencing current-account surpluses.

Accepted Answer

The main purpose of the International Monetary Fund is to provide financial assistance and support to member countries with balance of payments difficulties, not necessarily those experiencing current-account surpluses. The IMF also provides policy advice and technical assistance to its members. Loans may be one of the tools used by the IMF, but they are not the main purpose.

Question 10

Created by the International Monetary Fund, special drawing rights (SDRs) are unconditional rights to draw currencies of other nations, thus enabling countries to finance their current-account deficits.

Accepted Answer

This is the correct definition of special drawing rights.

Question 11

In the 1970s, the major industrial countries abandoned the managed-floating exchange rate system and adopted a system of fixed exchange rates tied to the price of gold.

Accepted Answer

This statement is incorrect. In the 1970s, the major industrial countries abandoned the fixed exchange rate system tied to gold and adopted a system of floating exchange rates.

Question 12

The supply of international reserves consists of owned reserves and borrowed reserves.

Accepted Answer

The supply of international reserves includes both owned reserves (such as gold and foreign currency holdings) and borrowed reserves (such as drawing on the resources of the International Monetary Fund or other lenders).

Question 13

Gold is currently the most widely used asset in the international monetary system.

Accepted Answer

The gold standard was abandoned in the 1970s and currently, the US dollar is the most widely used currency in the international monetary system.

Question 14

The main purpose of the International Monetary Fund is to grant long-term loans to developing nations to help them finance the development of infrastructure such as roads, dams, and bridges.

Accepted Answer

The main purpose of the International Monetary Fund (IMF) is to ensure the stability of the international monetary system by providing member countries with policy advice, financial assistance, and technical expertise. While the IMF may provide loans to support economic stabilization in developing countries, its primary focus is on maintaining global financial stability.

Question 15

The U.S. dollar has been considered a reserve (key) currency because trading nations have been willing to hold it as an international reserve asset.

Accepted Answer

The statement is true. The U.S. dollar has been a reserve currency since the 1944 Bretton Woods Agreement, in which other countries agreed to hold U.S. dollars as a reserve asset and the U.S. agreed to back dollars with gold. Even after the end of the gold standard in 1971, the dollar remains a key reserve currency due to its stability, liquidity, and broad acceptance in international trade.

Question 16

The U.S. dollar, Japanese yen, British pound, and Mexican peso are the major reserve currencies of the international monetary system.

Accepted Answer

The U.S. dollar, Japanese yen, and Euro are the major reserve currencies of the international monetary system, not the British pound or Mexican peso.

Question 17

A goal of the International Monetary Fund is to make short-term loans to member nations so as to allow them to correct balance of payments disequilibriums without resorting to measures that would destroy national prosperity.

Accepted Answer

This is a stated goal of the International Monetary Fund.

Question 18

The value of the SDR is tied to a currency basket consisting of the U.S. dollar, German mark, Japanese yen, French franc, and British pound.

Accepted Answer

The SDR (Special Drawing Right) value is determined by a basket of currencies which includes the U.S. dollar, euro, yen, Chinese yuan, and British pound, but not the German mark or French franc.

Question 19

By the 1990s, the British pound had replaced the U.S. dollar as the world's key currency.

Accepted Answer

This statement is false. The U.S. dollar remains the world's key currency today.

Question 20

If a nation with a balance-of-payments deficit is willing and able to initiate quick actions to increase export receipts and decrease import payments, the amount of international reserves needed will be relatively large.

Accepted Answer

If a nation with a balance-of-payments deficit takes quick actions to increase export receipts and decrease import payments, the amount of international reserves needed will be relatively small as the deficit will start to decrease. Therefore, the statement is false.

Quiz 17: International Banking: Reserves, Debt, and Risk