Deck 2: International Monetary System

Question 1

The euro currently in use is the common currency of

A)11 EU member countries
B)12 EU member countries
C)all EU member countries
D)all European countries

Answer 1

B

Question 2

Which of the following is NOT a responsibility of the European System of Central Banks:

A)To define and implement the common monetary policy of the Union
B)To define and implement the common fiscal policy of the Union
C)To conduct foreign exchange operations
D)To hold and manage the official foreign exchange reserves of the euro member states

Answer 2

B

Question 3

Under the Bretton Woods system

A)there was an explicit set of rules about the conduct of international monetary policies
B)each country was responsible for maintaining its exchange rate within 1 percent of the adopted par value by buying or selling foreign exchanges as necessary
C)the U.S.dollar was the only currency that was fully convertible to gold
D)all of these

Answer 3

D

Question 4

It is said that the gold-system was programmed to collapse in the long run.To satisfy the growing need for reserves,the United States had to run balance-of-payments deficits continuously.Yet,if the United States ran perennial balance-of-payments deficits,if would eventually impair the public confidence in the dollar.This dilemma I known as the

A)Triffin paradox
B)Triffin dilemma
C)Mundell paradox
D)Mundell dilemma

Question 5

The European Monetary System (EMS)has the following objectives:

A)To establish a "zone of monetary stability" in Europe
B)To coordinate exchange rate policies vis-à-vis the non EMS currencies
C)To pave the way for the eventual European Monetary Union
D)All of these

Question 6

The international monetary system went through several distinct stages of evolution.These stages are summarized,in alphabetic order,as follows:
(i)- Bimetallism
(ii)- Bretton Woods system
(iii)- Classical gold standard
(iv)- Flexible exchange rate regime
(v)- Interwar period
The (chronological)order that they actually occurred is:

A)(iii), (i), (iv), (ii), and (v)
B)(i), (iii), (v), (ii), and (iv)
C)(vi), (i), (iii), (ii), and (v)
D)(v), (ii), (i), (iii), and (iv)

Question 7

An "international" gold standard can be said to exist when

A)gold alone is assured of unrestricted coinage
B)there is two-way convertibility between gold and national currencies at a stable ratio
C)gold may be freely exported or imported
D)all of these

Question 8

Which of the following is a cost of a Monetary Union:

A)Loss of national monetary policy independence
B)Loss of exchange rate uncertainty
C)Increased transaction costs
D)Loss of efficiency

Question 9

Bretton-Woods system:

A)is an example of a fixed exchange rate regime
B)is an example of a flexible exchange rate regime
C)gave birth to the introduction of the Euro
D)was used to smooth transition from bimetallism to the classical gold standard

Question 10

Comparing the Euro-12 and the United States,which of the following statements is true?

A)The United States has a larger population than the Euro-12.
B)The United States has a larger GDP than the Euro-12.
C)Euro -12 has a larger share of World Trade than the United States.
D)Euro -12 has less international bonds outstanding than the United States.

Question 11

A "good" (or ideal)international monetary system should provide:

A)liquidity, elasticity, and flexibility
B)elasticity, sensitivity, and reliability
C)liquidity, adjustments, and confidence
D)none of these

Question 12

Which is the following is true for countries with fixed exchange rate regimes?

A)Central banks of these courtiers are required to maintain exchange reserves to cover 100% of the existing domestic currency
B)Centrals banks cannot use monetary policy to affect the economics fundamentals (such as inflation)
C)These countries must use currency board
D)None of these

Question 13

Before World War I,$20.67 was needed to buy one ounce of gold and FF 310.00 would also buy one ounce of gold.What was the exchange rate between the French franc and the US dollar?

A)FF0.0667/$
B)FF14.976/$
C)FF6407.7/$
D)$6407.7/FF

Question 14

A key element of the Jamaica Agreement from 1976 is

A)fixed exchange rates were declared unacceptable to the IMF members
B)pegged exchange rates were declared unacceptable to the IMF members
C)flexible exchange rates were declared acceptable to the IMF members
D)mixed exchange rates were declared acceptable to the IMF members

Question 15

Special Drawing Rights (SDR)is:

A)an artificial international reserve allotted to the members of the International Monetary Fund (IMF), who can then use it for transactions among themselves or with the IMF
B)a "portfolio" of currencies, and its value tends to be more stable than the currencies that it is comprised of
C)used in addition to gold and foreign exchanges, to make international payments
D)all of these

Question 16

The international monetary system can be defined as the institutional framework within which:

A)international payments are made
B)movements of capital are accommodated
C)exchange rates among currencies are determined
D)all of these

Question 17

The key arguments for flexible exchange rates are:

A)Easier external adjustments and national policy autonomy
B)Easier internal adjustments and national policy autonomy
C)Easier external adjustments and easier international trade
D)Easier internal adjustments and easier international trade

Question 18

Suppose that the British pound is pegged to gold at £6 per ounce,whereas one ounce of gold is worth FF12.Under the gold standard,any misalignment of the exchange rate will be automatically corrected by cross border flows of gold.Calculate the possible savings for buying FF1,000,if the British pound becomes undervalued and trades for FF1.80.(Assume zero shipping costs). (Hint:
Gold is first purchased using the devalued British pound from the Bank of England,then shipped to France and sold for FF1,000 to the Bank of France).

A)£55.56
B)£65.56
C)£75.56
D)£85.56

Question 19

If,under the Gold Standard,the price of 1oz of gold was $15 or £5,what was the $/£ exchange rate?

A)0.25 $/£
B)0.33 $/£
C)1 $/£
D)3 $/£

Question 20

Which of the following is NOT a benefit of a monetary union?

A)Elimination of exchange rate uncertainty
B)Reduced transactions costs
C)Ability to absorb economic shocks
D)Enhanced efficiency and competitiveness

Question 21

The Argentine peso was pegged to the US dollar at a rate of 1 to 1 until January 17,2002.Argentina experienced trade deficits in prior to the collapse of the currency board.Graphically illustrate the external adjustment mechanism.

Question 22

Can all of the following three conditions:
(1)fixed exchange rate,
(2)free international flow of capital,and
(3)independent monetary policy
Be satisfied simultaneously?
Why?
.

Question 23

Before World War I,GBP 2.2474 was needed to buy one ounce of gold.FF 310.00 would also buy one ounce of gold.What was the exchange rate between the French franc and the British Pound?

Question 24

The Chinese renminbi is currently pegged to the US dollar at a rate of 8.28 to 1.The renminbi is considered to be undervalued (that is the exchange rate should be lower).Graphically illustrate the external adjustment mechanism.What happens to the Chinese foreign exchange reserves?

Question 25

Suppose that the British pound is pegged to gold at £6 per ounce and one ounce of gold is worth FF12.The exchange rate is FF1.8/£ and you have FF11,000.How much profit can you make?
(Assume zero shipping costs).