Deck 16: The International Monetary System: Bretton Woods to the End of the Twenty-First Century

Question 1

Some governments intervene in the foreign exchange markets to intentionally suppress the values of their currencies. Among the reasons why a government keeps its currency undervalued is:

A) the desire to help exporters.
B) the desire to help domestic firms with foreign debt.
C) the desire to make important imports less expensive.
D) the desire to make it less expensive for domestic citizens to acquire foreign assets.
E) None of the above.

Answer 1

the desire to help exporters.

Question 2

Among the principal features of the Bretton Woods system were:

A) floating exchange rates.
B) currencies that were freely convertible to other currencies.
C) frequent devaluations.
D) strict bans on central bank intervention in the foreign exchange market.
E) All of the preceding items were features.

Answer 2

currencies that were freely convertible to other currencies.

Question 3

The Bretton Woods conference took place:

A) at the end of World War I.
B) after the end of World War II.
C) during World War II.
D) at the beginning of the 1970s.

Answer 3

during World War II.

Question 4

Among the characteristics of the Bretton Woods system was:

A) floating exchange rates.
B) a return to the gold standard.
C) the pegging of all currencies to the U.S. dollar.
D) All of the preceding items were characteristics of the Bretton Woods system.

Question 5

The Bretton Woods Conference led to the establishment of:

A) the EMS.
B) the IMF.
C) the U.N.
D) the EEC.
E) All of the above.

Question 6

Under the Bretton Woods system, foreign exchange market intervention was carried out by:

A) The Bank of England.
B) The Central Bank of France.
C) The Japanese Central Bank.
D) All of the above.
E) None of the above.

Question 7

The Bretton Woods order lasted:

A) only a couple of years after World War II.
B) for most of the twentieth century.
C) from World War II until the Reagan administration abolished it in 1982.
D) from 1971 until the international debt crisis in 1982.
E) None of the above.

Question 8

Under the Bretton Woods system, the United States Federal Reserve Bank:

A) was responsible for setting exchange rates.
B) was responsible for maintaining the dollar/pound exchange rate only.
C) was the only central bank not responsible for pegging exchange rates.
D) closely supervised the world's foreign exchange markets.

Question 9

The exchange rate arrangement agreed to at the Bretton Woods conference is known as:

A) the dirty float.
B) the adjustable peg.
C) the bimetallic standard.
D) the EMS.

Question 10

In the late 1960s the higher U.S. rate of inflation, relative to that of Germany, caused the German central bank to have to:

A) increase the supply of dollars.
B) decrease the supply of marks.
C) increase the supply of marks.
D) None of the preceding answers is correct.

Question 11

The Bretton Woods system was similar to the gold standard in that:

A) exchange rates remained fixed.
B) central banks intervened in the foreign exchange markets.
C) exchange rates floated.
D) all currencies were convertible to gold.

Question 12

The Bretton Woods system of adjustable pegs gave way to floating exchange rates because, among other things:

A) the United States ran persistent large balance of payments surpluses, which prevented other countries from accumulating any dollar reserves.
B) the United States accumulated all the world's gold.
C) central bank intervention required to maintain the pegs interfered with monetary policy goals.
D) floating exchange rates would be more stable.

Question 13

The Bretton Woods system was followed by:

A) the gold standard.
B) an informal system of floating exchange rates for the major currencies.
C) a meeting at which all countries agreed to intervene to keep all currencies perfectly fixed for three years before converting to a single global currency.
D) the International Monetary Fund (IMF) system.

Question 14

The Bretton Woods system of adjustable pegs gave way to floating exchange rates because, among other things:

A) the United States ran persistent large balance of payments surpluses, which reduced international reserves.
B) the United States accumulated all the world's gold.
C) the central bank intervention required to maintain pegged exchange rates was relatively small in the late 1960s.
D) All of the above.
E) None of the above.

Question 15

Floating exchange rates since 1973 have:

A) been very unstable.
B) enabled international trade to continue growing.
C) caused international investment to grow, albeit somewhat erratically.
D) All of the above.
E) None of the above.

Question 16

The Bretton Woods Conference did not establish:

A) the United Nations.
B) the International Monetary Fund.
C) the World Bank.
D) All of the above.
E) None of the above.

Question 17

Floating exchange rates since 1973 have:

A) been very stable.
B) prevented trade from growing at all.
C) caused international investment to decline sharply.
D) fluctuated much more than most economists had expected.

Question 18

Floating exchange rates were a prominent characteristic of the international financial system:

A) before World War I.
B) during 1945-1973.
C) during 1926-1930.
D) during 1973-1979.

Question 19

The European Monetary System (EMS):

A) was the first fixed exchange rate system to fail during the twentieth century.
B) eliminated all exchange rate changes among most European currencies between 1979 and 1992.
C) was abandoned in the early 1990s after several European currencies suffered speculative attacks.
D) was the first fixed exchange rate system to succeed during the twentieth century.

Question 20

Among the criteria that countries had to satisfy before they could join the European Monetary Union in 2002 were:

A) total government debt had to be less than 10 percent of GDP.
B) inflation had to be less than 1.5 percent above the average inflation rate of the three European countries with the lowest inflation.
C) interest rates on openly-traded government bonds had to be less than 5 percentage points above the average rates for the three European countries with the lowest rates.
D) the government budget deficit had to be less than 10 percent of GDP.

Question 21

In 2002, 12 European countries:

A) exchanged their national currencies for a single currency called the euro.
B) inaugurated the European Monetary System (EMS).
C) began using the U.S. dollar as their currency.
D) abandoned the European Monetary System (EMS) for a system of floating exchange rates.