Question 1

______________ also adds to the uncertainty surrounding future currency movements that characterizes floating exchange rate regimes.
A)The impracticality of the gold standard
B)Monetary policy autonomy
C)Trade balance Adjustments
D)Speculation
E)Market forces

Accepted Answer

Speculation is a major factor that affects the uncertainty surrounding future currency movements in floating exchange rate regimes. Speculators try to predict exchange rate movements and trade accordingly, which can influence exchange rates and add to the unpredictability of currency values.

Question 2

The fall in the value of the U.S.dollar against the German mark between 1985 and 1987 was caused by a combination of
A)government intervention and market forces.
B)high inflation and high unemployment.
C)a trade deficit and high consumer debt.
D)worldwide inflation and high unemployment.
E)the oil embargo and deflation

Accepted Answer

The fall in the value of the U.S. dollar against the German mark between 1985 and 1987 was caused by a combination of government intervention, such as the Plaza Accord, and market forces, like lower interest rates in the United States, which caused investors to seek higher returns elsewhere.

Question 3

Under a ______________ exchange rate regime, a country's ability to expand or contract its money supply as it sees fit is limited by the need to maintain exchange rate parity.
A)forward
B)fixed
C)narrow
D)floating
E)managed float

Accepted Answer

A fixed exchange rate regime, also known as a pegged exchange rate regime, is one in which the exchange rate is fixed to the value of another currency or a basket of currencies. In this type of regime, a country's ability to expand or contract its money supply is limited because it must maintain the exchange rate at a certain level. If the country tries to expand its money supply too much, it could lead to a devaluation of the currency and a break in the exchange rate parity. Similarly, if the country tries to contract the money supply too much, it could lead to an appreciation of the currency and a break in the exchange rate parity.

Question 4

The case for fixed exchange rates rests on arguments about monetary discipline, speculation, the lack of connection between the trade balance and exchange rates, and _______________.
A)automatic trade balance adjustments
B)uncertainty
C)the impracticality of the gold standard
D)monetary policy autonomy
E)the importance of the U.S.dollar

Accepted Answer

The answer of The case for fixed exchange rates rests...

Question 5

What percent of the IMF's 185 members allow their currency to float freely?
A)15 percent
B)19 percent
C)32 percent
D)41 percent
E)20 percent

Accepted Answer

The answer of What percent of the IMF's 185 members...

Question 6

"Free float" exchange rates are determined by
A)the IMF.
B)market forces.
C)governments.
D)the World Bank.
E)national banks

Accepted Answer

Free float exchange rates are determined by market forces, such as supply and demand for currencies. Governments or international organizations such as the IMF and World Bank may have some influence, but ultimately it is the market that sets the rate. National banks also play a role in implementing monetary policy and affecting exchange rates, but they do not directly determine free float rates.

Question 7

There is some evidence that adopting a pegged exchange rate regime
A)reduces unemployment in a country.
B)moderates inflationary pressure in a country.
C)increases global GNP.
D)decreases global GNP.
E)increases GNI growth within the country

Accepted Answer

Adopting a pegged exchange rate regime can help moderate inflationary pressure in a country by reducing the volatility of the exchange rate, which can help stabilize import and export prices. This can in turn help to moderate inflationary pressures.

Question 8

It is argued that a _______________ exchange rate regime gives countries monetary policy autonomy.
A)restricted
B)forward
C)fixed
D)floating
E)managed float

Accepted Answer

In a floating exchange rate regime, the exchange rate is determined by market forces of supply and demand. As a result, central banks do not need to intervene in the market to maintain a fixed exchange rate, giving countries monetary policy autonomy. Countries can adjust their interest rates as needed to achieve their desired macroeconomic objectives without having to worry about maintaining a fixed exchange rate.

Question 9

A IMF study concluded that countries with pegged exchange rate regimes had an average annual inflation rate of ______________, compared with 14 percent for intermediate regimes and 16 percent for floating regimes.
A)4 percent
B)18 percent
C)14 percent
D)8 percent
E)0.8 percent

Accepted Answer

The answer of A IMF study concluded that countries with...

Question 10

According to our textbook, those in favour of floating exchange rates argue that floating rates
A)discourage speculation.
B)help confuse trade imbalances.
C)decrease uncertainty
D)have no effect on trade imbalances.
E)help adjust trade imbalances.

Accepted Answer

Those in favor of floating exchange rates argue that it helps adjust trade imbalances by allowing the exchange rate to fluctuate freely based on supply and demand, which can eventually lead to a correction in a country's trade deficit or surplus.

Question 11

The partial collapse of the European Monetary System occurred in
A)1980.
B)2001.
C)1992.
D)1998.
E)1973

Accepted Answer

The partial collapse of the European Monetary System occurred in 1992, also known as Black Wednesday. This was when the UK and Italy withdrew from the Exchange Rate Mechanism and the system was forced to redefine its currency bands.

Question 12

Floating exchange rates are determined by
A)market forces.
B)the IMF.
C)the World Bank.
D)an international commission on exchange rate parity.
E)national banks

Accepted Answer

Floating exchange rates are determined by market forces, which means that the exchange rate is not fixed and is instead influenced by supply and demand for a currency in the foreign exchange market. Governments and central banks may intervene in the market to influence exchange rates, but ultimately it is the market that determines the exchange rate. The IMF and World Bank may provide recommendations or assistance related to exchange rate policies, but they do not directly determine floating exchange rates. An international commission on exchange rate parity does not exist, and while national banks may have some influence, they do not solely determine floating exchange rates.

Question 13

______ can lead to inflation, which puts downward pressure on fixed exchange rates.
A)Monetary restrictions
B)Monetary standard
C)Sporadic trade balance adjustments
D)Monetary policy control
E)Monetary expansion

Accepted Answer

Monetary expansion refers to an increase in the money supply within an economy, which can lead to higher inflation rates. Inflation, in turn, puts downward pressure on fixed exchange rates because it reduces the purchasing power of a currency. This can lead to a situation where the central bank is forced to adjust the exchange rate in order to maintain its value against other currencies.

Question 14

Pegged exchange rates are popular among many of the world's
A)industrialized nations.
B)largest nations.
C)smaller nations.
D)communist nations.
E)developing nations

Accepted Answer

Pegged exchange rates are often used by smaller nations who lack the resources and stability to maintain a flexible exchange rate system. Larger and industrialized nations typically have the resources and economic stability to adopt a floating exchange rate system. Communist nations may also have central control over their currency and exchange rates. Developing nations may use pegged exchange rates as a temporary measure while they work towards economic stability and growth.

Question 15

The case for floating exchange rates has two main elements.These are
A)monetary policy autonomy and automatic trade balance adjustments.
B)sporadic trade balance adjustments and monetary policy autonomy.
C)the impracticality of the gold standard and monetary policy control.
D)monetary policy control and sporadic trade balance adjustments.
E)monetary policy interdependence and autonomic trade balance adjustments

Accepted Answer

The two main elements in favor of floating exchange rates are monetary policy autonomy and automatic trade balance adjustments. With floating exchange rates, a country's central bank can use monetary policy to control inflation and employment without being constrained by the need to maintain a fixed exchange rate. Additionally, the exchange rate will automatically adjust to changes in trade imbalances, helping to correct any current account deficits or surpluses.

Question 16

The frequency of government interventions in the foreign exchange markets explains why the current system is often referred to as a managed-float system or a
A)functional float system.
B)statutory float system.
C)dirty float system.
D)unwieldy float system.
E)controlled float system

Accepted Answer

The term "dirty float" refers to a managed-float system where governments intervene in the foreign exchange markets to manipulate the value of their currency. This is in contrast to a clean float system where market forces determine the exchange rate without government intervention. The other options are not commonly used terms to describe the current international monetary system.

Question 17

Under a floating exchange rate regime, market forces have produced
A)a near fixed U.S.dollar exchange rate.
B)a predictable U.S.dollar exchange rate.
C)a stable U.S.dollar exchange rate.
D)a volatile U.S.dollar exchange rate.
E)a controlled dynamic U.S.dollar exchange rate

Accepted Answer

Under a floating exchange rate regime, the exchange rate is determined by market forces of supply and demand. This means that the exchange rate can fluctuate widely and quickly based on changing economic conditions, resulting in a volatile U.S. dollar exchange rate. Therefore, option D is the best choice.

Question 18

Advocates of a ________________ exchange rate regime argue that removal of the obligation to maintain exchange rate parity restores monetary control to a government.
A)fixed
B)floating
C)narrow
D)forward
E)managed float

Accepted Answer

Advocates of a floating exchange rate regime argue that it allows a government to pursue its domestic monetary policy without interference from the need to maintain exchange rate parity. In a floating regime, the exchange rate is determined by market forces and can fluctuate freely. This gives a government more control over its monetary policy, as it is not obligated to intervene and maintain a specific exchange rate. Therefore, option B) is the best choice for this question.

Question 19

Under a pegged exchange rate regime, a country will peg the value of its currency to
A)an index of world currencies maintained by the World Bank.
B)that of a major currency.
C)an index of "peer nation" currencies.
D)an index of its historic currency rates.
E)the index of its major trading partners' currencies

Accepted Answer

Under a pegged exchange rate regime, a country will peg the value of its currency to that of a major currency, such as the US dollar or the euro. This is done in order to stabilize the value of the country's currency and promote international trade. Pegging to an index of world currencies or peer nation currencies does not provide as much stability and can be subject to fluctuations. Pegging to historic currency rates is not a common practice, and pegging to the currencies of major trading partners may not necessarily be the most stable option.

Question 20

Under the Bretton Woods system, if a country developed a permanent deficit in its balance of trade that could not be corrected by domestic policy, the IMF would agree to a
A)currency devaluation.
B)increase in employment.
C)increase in output.
D)increase in interest rates.
E)increased tariffs

Accepted Answer

Under the Bretton Woods system, if a country developed a permanent deficit in its balance of trade that could not be corrected by domestic policy, the IMF would agree to a currency devaluation. This would make the country's exports cheaper and imports more expensive, helping to restore balance in the trade.

Quiz 10: The Global Monetary System

______________ also adds to the uncertainty surrounding future currency movements that characterizes floating exchange rate regimes.

The fall in the value of the U.S.dollar against the German mark between 1985 and 1987 was caused by a combination of

Under a ______________ exchange rate regime, a country's ability to expand or contract its money supply as it sees fit is limited by the need to maintain exchange rate parity.

The case for fixed exchange rates rests on arguments about monetary discipline, speculation, the lack of connection between the trade balance and exchange rates, and _______________.

What percent of the IMF's 185 members allow their currency to float freely?

"Free float" exchange rates are determined by

There is some evidence that adopting a pegged exchange rate regime

It is argued that a _______________ exchange rate regime gives countries monetary policy autonomy.

A IMF study concluded that countries with pegged exchange rate regimes had an average annual inflation rate of ______________, compared with 14 percent for intermediate regimes and 16 percent for floating regimes.

According to our textbook, those in favour of floating exchange rates argue that floating rates

The partial collapse of the European Monetary System occurred in

Floating exchange rates are determined by

______ can lead to inflation, which puts downward pressure on fixed exchange rates.

Pegged exchange rates are popular among many of the world's

The case for floating exchange rates has two main elements.These are

The frequency of government interventions in the foreign exchange markets explains why the current system is often referred to as a managed-float system or a

Under a floating exchange rate regime, market forces have produced

Advocates of a ________________ exchange rate regime argue that removal of the obligation to maintain exchange rate parity restores monetary control to a government.

Under a pegged exchange rate regime, a country will peg the value of its currency to

Under the Bretton Woods system, if a country developed a permanent deficit in its balance of trade that could not be corrected by domestic policy, the IMF would agree to a