Question 1

Revaluation of a currency's value occurs when

Accepted Answer

Revaluation refers to an official increase in the value of a currency in a fixed exchange rate system.

Question 2

Which of the following are true statements about the Bretton Woods system?

Accepted Answer

Statement B is true. The U.S. dollar was designated as the reserve currency under the Bretton Woods system, meaning it was used to denominate international transactions and was held as a reserve by other central banks.

None of the other statements are true. Statement A is incorrect because the Bretton Woods system was a fixed exchange rate regime, not a flexible one. Statement C is incorrect because the Bretton Woods agreement lasted until 1971, not 1945.

Question 3

The Bretton Woods agreement created the ________,which was given the task of promoting the growth of world trade by setting rules for the maintenance of fixed exchange rates and by making loans to countries that were experiencing balance of payments difficulties.

Accepted Answer

The International Monetary Fund (IMF) was created by the Bretton Woods agreement to promote world trade and maintain fixed exchange rates, as well as assist countries facing balance of payments difficulties. The other choices mentioned (World Bank, Central Settlements Bank, Bank of International Settlements, and European Exchange Rate Mechanism) are not directly related to the Bretton Woods agreement or the promotion of world trade through fixed exchange rates.

Question 4

The Bretton Woods system was one in which central banks

Accepted Answer

The Bretton Woods system was a fixed exchange rate regime in which central banks bought and sold their own currencies to keep exchange rates fixed. Option A and C are incorrect because there was no such agreement to limit domestic money growth to a certain average. Option B is also incorrect because central banks did intervene in the foreign exchange market to maintain fixed exchange rates.

Question 5

If a country's central bank eventually runs out of international reserves,it cannot keep its currency from ________ and a ________ must occur in which the par exchange value is reset at a ________ level.

Accepted Answer

If a country's central bank runs out of international reserves, it cannot maintain the value of its currency and it will start to depreciate. Therefore, a devaluation must occur, which means that the central bank intentionally lowers the currency's value by reseting the par exchange value at a lower level. So, the correct option is C, which states that the currency will depreciate, a devaluation will occur, and it will be reset at a lower level.

Question 6

Under a fixed exchange rate regime,if the domestic currency is initially ________,that is ________ par,the central bank must intervene to buy the domestic currency by selling foreign assets.

Accepted Answer

Under a fixed exchange rate regime, if the domestic currency is initially overvalued, it means it is valued higher than it should be, or above par. To correct this, the central bank must intervene by buying the domestic currency and selling its foreign assets to increase the demand for the domestic currency, thereby adjusting its value.

Question 7

If a central bank does not want to see its currency fall in value,it may pursue ________ monetary policy to ________ the domestic interest rate,thereby strengthening its currency.

Accepted Answer

A contractionary monetary policy involves raising interest rates, which makes the currency more attractive to foreign investors and increases demand for the currency, ultimately strengthening its value.

Question 8

In the Bretton Woods system,the anchor currency was the

Accepted Answer

The anchor currency in the Bretton Woods system was the U.S. dollar, which was convertible to gold at a fixed rate of $35 per ounce. Other countries could peg their currencies to the U.S. dollar and maintain a fixed exchange rate.

Question 9

Policymakers may not want to see their country's currency appreciate because

Accepted Answer

An appreciation of a country's currency makes its exports more expensive and imports cheaper. This can hurt domestic businesses because their goods become less competitive both abroad and at home, as foreign goods become more affordable to domestic consumers.

Question 10

Under a fixed exchange rate regime,when the domestic currency is undervalued,the central bank must ________ the domestic currency to keep the exchange rate fixed; as a result,it ________ international reserves.

Accepted Answer

The answer of Under a fixed exchange rate regime,when the...

Question 11

The Bretton Woods agreement set up the ________,which currently provides long-term loans to assist developing countries to build dams,roads,and other physical capital that contributes to economic development.

Accepted Answer

The World Bank was established under the Bretton Woods agreement and provides long-term loans for development projects in developing countries. The International Monetary Fund (A) focuses on short-term loans for economic stabilization and balance of payments support. The Central Settlements Bank (C) and Bank of International Settlements (D) are not directly related to development lending. The European Exchange Rate Mechanism (E) is a system for maintaining exchange rate stability within Europe.

Question 12

Under a managed float exchange rate regime,policymakers frequently do not want to see their currencies depreciate because it makes ________ goods more expensive for ________ consumers and contributes to inflation.

Accepted Answer

Under a managed float exchange rate regime, when a currency depreciates, foreign goods become more expensive for domestic consumers, which can contribute to inflation by increasing the cost of imported goods and services.

Question 13

If a central bank does not want to see its currency rise in value,it may pursue ________ monetary policy to ________ the domestic interest rate,thereby weakening its currency.

Accepted Answer

When a central bank wants to weaken its currency it will pursue expansionary monetary policy, which involves lowering domestic interest rates. This encourages borrowing and spending, which in turn weakens the currency. Contrarily, contractionary monetary policy involves raising interest rates which attracts foreign investors, causing the currency to appreciate. Therefore, the correct choice is C, expansionary monetary policy to lower domestic interest rates.

Question 14

If the domestic currency is initially undervalued,that is below par,the central bank must intervene to sell the ________ currency by purchasing ________ assets.

Accepted Answer

If the domestic currency is undervalued, the central bank must intervene to sell the domestic currency by purchasing foreign assets.

Question 15

Depreciation of a currency occurs when

Accepted Answer

Depreciation of a currency occurs when a floating exchange rate adjusts downward. This means that the currency has decreased in value compared to other currencies in the foreign exchange market. A floating exchange rate is determined by market forces of supply and demand and can fluctuate daily based on economic conditions and international trade.

Question 16

Under a fixed exchange rate regime,if the domestic currency is initially ________,that is ________ par,the central bank must intervene to sell the domestic currency by purchasing foreign assets.

Accepted Answer

If the domestic currency is undervalued (i.e. its value is below its par value), the central bank will need to intervene by purchasing domestic currency and selling foreign assets. This is done in order to increase the value of the domestic currency and bring it back to its par value. If the domestic currency is overvalued (i.e. its value is above its par value), the central bank will need to intervene by selling domestic currency and purchasing foreign assets, in order to decrease the value of the domestic currency and bring it back to its par value.

Question 17

Which of the following are true statements about the Bretton Woods system?

Accepted Answer

Statement A is true, as the Bretton Woods system was a fixed exchange rate regime where central banks intervened in the foreign exchange market to keep their currencies at a fixed rate. 
Statement B is also true, as the IMF was created to lend international reserves to countries facing balance of payments deficits, which could have threatened their ability to maintain their fixed exchange rates. 
Statement C is not true, as the US dollar was the primary reserve currency during the Bretton Woods system.

Question 18

Which of the following policies is not part of the "policy trilemma"?

Accepted Answer

The policy trilemma, also known as the impossible trinity, refers to the idea that a country cannot have all three of the following policies simultaneously: fixed exchange rate, free capital mobility, and independent monetary policy. Dollarization is a policy where a country adopts the US dollar as its official currency, and it is not considered one of the policies in the trilemma. Therefore, the answer is A.

Question 19

Under a fixed exchange rate regime,when the domestic currency is overvalued,the central bank must ________ the domestic currency to keep the exchange rate fixed; as a result,it ________ international reserves.

Accepted Answer

When the domestic currency is overvalued, the central bank must sell the domestic currency to keep the exchange rate fixed. As a result, it loses international reserves.

Question 20

What kind of exchange rate system did the Bretton Woods agreement establish?

Accepted Answer

The Bretton Woods agreement established a fixed exchange rate system, where currencies were fixed to the US dollar and the US dollar was fixed to gold. This system was in place from 1944 to 1971.

Quiz 16: The International Financial System

Revaluation of a currency's value occurs when

Which of the following are true statements about the Bretton Woods system?

The Bretton Woods agreement created the ________,which was given the task of promoting the growth of world trade by setting rules for the maintenance of fixed exchange rates and by making loans to countries that were experiencing balance of payments difficulties.

The Bretton Woods system was one in which central banks

If a country's central bank eventually runs out of international reserves,it cannot keep its currency from and a must occur in which the par exchange value is reset at a level.

Under a fixed exchange rate regime,if the domestic currency is initially ,that is par,the central bank must intervene to buy the domestic currency by selling foreign assets.

If a central bank does not want to see its currency fall in value,it may pursue monetary policy to the domestic interest rate,thereby strengthening its currency.

In the Bretton Woods system,the anchor currency was the

Policymakers may not want to see their country's currency appreciate because

Under a fixed exchange rate regime,when the domestic currency is undervalued,the central bank must the domestic currency to keep the exchange rate fixed; as a result,it international reserves.

The Bretton Woods agreement set up the ________,which currently provides long-term loans to assist developing countries to build dams,roads,and other physical capital that contributes to economic development.

Under a managed float exchange rate regime,policymakers frequently do not want to see their currencies depreciate because it makes goods more expensive for consumers and contributes to inflation.

If a central bank does not want to see its currency rise in value,it may pursue monetary policy to the domestic interest rate,thereby weakening its currency.

If the domestic currency is initially undervalued,that is below par,the central bank must intervene to sell the currency by purchasing assets.

Depreciation of a currency occurs when

Under a fixed exchange rate regime,if the domestic currency is initially ,that is par,the central bank must intervene to sell the domestic currency by purchasing foreign assets.

Which of the following are true statements about the Bretton Woods system?

Which of the following policies is not part of the "policy trilemma"?

Under a fixed exchange rate regime,when the domestic currency is overvalued,the central bank must the domestic currency to keep the exchange rate fixed; as a result,it international reserves.

What kind of exchange rate system did the Bretton Woods agreement establish?