Question 1

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 actually to provide loans of foreign currencies to member countries which are experiencing balance-of-payment difficulties or deficits, not surpluses.

Question 2

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

Accepted Answer

Gold is no longer the most widely used asset in the international monetary system. Since the 1970s, the global monetary system increasingly relies on a system of fiat currencies that are not backed by a physical commodity. The US dollar has become the dominant reserve currency in the world, but other major currencies like the euro, yen, and pound also play a significant role. Additionally, central banks hold a variety of financial assets beyond gold, including government bonds and other currencies, as part of their foreign exchange reserves.

Question 3

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

Accepted Answer

Foreign currencies, particularly the US dollar, make up the largest component of the world's international reserves.

Question 4

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

Accepted Answer

The United States did indeed revoke a 41-year ban on U.S. citizen's ownership of gold in 1974. This ban was put in place in 1933 during the Great Depression to prevent hoarding and speculation in gold.

Question 5

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 is able to quickly increase export receipts and decrease import payments, it will reduce its balance-of-payments deficit, which means it will need fewer international reserves to cover the deficit. Therefore, the amount of international reserves needed will be relatively small, not large.

Question 6

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 to promote international economic cooperation and facilitate international trade while avoiding policies that harm economic growth and development in member countries.

Question 7

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 widely accepted and used as a reserve currency by countries around the world due to its stability, liquidity, and widespread acceptance in international trade. Many countries also peg their own currency to the U.S. dollar, further cementing its position as a key currency.

Question 8

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 is true. The IMF has at times required nations in financial distress to implement austerity measures as a condition of receiving loans or other forms of financial assistance. Austerity measures may include reducing government spending, increasing taxes, and other economic reforms aimed at reducing a country's budget deficit or stabilizing its currency.

Question 9

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 as conditionality is one of the key features of the IMF's lending program. The IMF requires borrowing countries to meet certain economic targets and implement specific policy reforms in exchange for financial assistance.

Question 10

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 or foreign currency held by a country's central bank) and borrowed reserves (such as funds obtained through international organizations or other countries).

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

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

Question 12

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

In 1975, the official price of gold was abolished and gold was demonetized as an international reserve asset. This means that it no longer served as the unit of account for the international monetary system.

Question 13

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

Accepted Answer

As of 2021, the US dollar is the largest component of the world's international reserves, followed by the euro and Japanese yen. Gold is still held in reserves by many countries, but it is no longer considered the largest component.

Question 14

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 as of 2021.

Question 15

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 16

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 statement is true. Special Drawing Rights (SDRs) are international reserve assets created by the International Monetary Fund (IMF) in 1969 to supplement the existing official reserves of member countries. SDRs can be used to supplement existing reserves or to finance balance of payments deficits. SDRs are not a currency and do not represent a claim on the IMF, but rather a claim on the freely usable currencies of IMF member countries.

Question 17

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

Accepted Answer

The answer of The U.S.dollar,Japanese yen,British pound,and Mexican peso are...

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) is indeed tied to a currency basket consisting of the U.S. dollar, euro, Japanese yen, Chinese yuan, and British pound. The German mark and French franc were part of the previous currency basket that was replaced in 1999 with the introduction of the euro.

Question 19

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

Accepted Answer

This statement is false. The SDR (Special Drawing Rights) is a supplementary reserve asset, created and maintained by the International Monetary Fund (IMF), and it does not replace any national currencies. The US Dollar remains the dominant currency in the international financial system.

Question 20

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 is to promote international monetary cooperation, exchange stability, and orderly exchange arrangements; to facilitate the balanced growth of international trade; and to provide resources to help member countries correct balance of payments problems. The IMF provides financial assistance to member countries facing balance of payments difficulties, but it is not solely focused on infrastructure development.

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