Question 1

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

Smaller nations often use pegged exchange rates to stabilize their currency and maintain economic stability by tying their currency value to a more stable and widely used currency.

Question 2

An 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 An IMF study concluded that countries with...

Question 3

______ 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 can lead to an increase in the supply of money, which can lead to inflation. When inflation occurs, the purchasing power of a currency decreases, putting downward pressure on fixed exchange rates.

Question 4

______________ 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

Speculators can create volatility in foreign exchange markets by buying and selling currencies based on their expectations of future price movements. This uncertainty can make it difficult for businesses to plan and can lead to sudden and unexpected currency fluctuations.

Question 5

A country that introduces a(n)______________ commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate.
A) currency board
B) monetary review commission
C) exchange rate review commission
D) certificate board
E) IMF pegged rate regime

Accepted Answer

A currency board is a monetary authority that issues a domestic currency and commits to converting it on demand into a foreign currency at a fixed exchange rate. This fixed-rate regime requires currency boards to hold a reserve of the foreign currency to back the domestic currency in circulation. This mechanism provides stability to the domestic currency and makes it more attractive to foreign investors. The other options, such as monetary review commission, exchange rate review commission, and certificate board, do not exist in practice as monetary authorities or policy tools. The IMF pegged rate regime exists but refers to an international agreement between countries rather than a domestic policy choice.

Question 6

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 case for floating exchange rates is based on the two main elements of monetary policy autonomy and automatic trade balance adjustments. This means that countries have control over their own monetary policies and can adjust interest rates and other measures to address their specific economic needs, while also allowing the exchange rate to fluctuate freely based on market forces, which can help to automatically rebalance trade.

Question 7

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

Under a fixed exchange rate regime, a country's currency is tied to another currency or to a commodity (like gold) and its central bank must intervene in the foreign exchange market to maintain exchange rate parity. This means that the country cannot fully control its money supply and inflation rate, as it needs to hold enough foreign exchange reserves to honor the fixed exchange rate.

Question 8

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 they help adjust trade imbalances. This is because floating rates allow for market forces to determine the value of a currency, which can result in a potentially weaker currency that makes exports cheaper and imports more expensive, thus helping to rebalance trade deficits.

Question 9

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(n)____________.
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. Devaluation would lower the value of the country's currency, making its exports cheaper and imports more expensive. This would lead to an increase in demand for domestic goods, which would help to reduce the trade deficit.

Question 10

"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 refer to a system where currency values are determined by the forces of supply and demand in the market, meaning that they are not regulated or fixed by governments or international organizations such as the IMF or World Bank. Therefore, the correct answer is B, market forces.

Question 11

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

Fixed exchange rates reduce uncertainty in international transactions, as they provide stability in exchange rates, which can encourage international trade and investment.

Question 12

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 13

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 value of a country's currency is determined by market forces of supply and demand, without government intervention. This means that the central bank of a country is able to adjust its monetary policy independently, without being constrained by a fixed exchange rate. Therefore, a floating exchange rate regime gives countries monetary policy autonomy.

Question 14

A(n)______________ is a governing body that manages the value of a currency by holding foreign currency reserves equal to the amount of domestic currency issued at a fixed exchange rate.
A) exchange rate committee
B) currency board
C) certificate board
D) monetary review commission
E) national bank currency committee

Accepted Answer

A currency board is a governing body that manages the value of a currency through a fixed exchange rate system. It holds foreign currency reserves equal to the amount of domestic currency issued, thus ensuring that the exchange rate remains stable. The other options listed do not accurately describe the functions of a currency board.

Question 15

Under a floating exchange rate regime,market forces have produced what?
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 supply and demand in the foreign exchange market, which can create fluctuations and volatility in the exchange rate. Therefore, a volatile U.S. dollar exchange rate is the most likely outcome.

Question 16

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 to moderate inflationary pressure in a country by keeping the value of the currency relatively stable against other currencies. This can help to maintain price stability and prevent inflation from spiraling out of control. However, there is no evidence to suggest that a pegged exchange rate regime reduces unemployment or increases global GNP. Additionally, while it may contribute to GDP growth within a country, this is not the same as increasing GNI growth, which is a measure of the income earned by a country's residents.

Question 17

Over the past 30 years,the activities of the IMF have ______________.
A) expanded
B) declined
C) expanded in developed countries but declined in underdeveloped countries
D) expanded in underdeveloped countries but declined in developed countries
E) been increasingly criticized as being an instrument of the U.S. government

Accepted Answer

The IMF's activities have expanded over the past 30 years, particularly in developing countries where it has played a significant role in providing financial assistance and promoting economic stability.

Question 18

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 pegs the value of its currency to that of a major currency, such as the U.S. dollar, the Euro, or the Japanese yen. This helps to stabilize the country's exchange rate and promote international trade and investment. Pegging to an index of currencies maintained by the World Bank or historic currency rates may not be as effective in achieving stability, while pegging to peer nation currencies or trading partners' currencies can be more difficult to manage and adjust over time.

Question 19

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(n)______________.
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" is often used to describe a system where government intervention occurs in order to manage the exchange rate, rather than leaving it entirely up to market forces. The other answer choices are not commonly used terms to describe the current foreign exchange system.

Question 20

Floating exchange rates are determined by what?
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 of supply and demand in the foreign exchange market. The exchange rate is not fixed and can vary based on changing economic conditions, such as inflation or changes in interest rates, as well as political factors and other events that affect international trade and investment. The IMF and World Bank may play a role in advising and influencing exchange rates, but they do not have direct control over them. Similarly, national banks may intervene in the foreign exchange market to influence exchange rates, but ultimately it is the market that determines the rate.

Quiz 10: The Global Monetary System

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

An 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.

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

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

A country that introduces a(n) ______________ commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate.

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

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.

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

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(n) ____________.

"Free float" exchange rates are determined by _____________.

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 _______________.

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

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

A(n) ______________ is a governing body that manages the value of a currency by holding foreign currency reserves equal to the amount of domestic currency issued at a fixed exchange rate.

Under a floating exchange rate regime,market forces have produced what?

There is some evidence that adopting a pegged exchange rate regime _________________.

Over the past 30 years,the activities of the IMF have ______________.

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

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(n) ______________.

Floating exchange rates are determined by what?