Question 1

Which of the following is false with regard to the present international monetary system?&#10;A)Special Drawing Rights are the primary reserve asset&#10;B)Monetary authorities intervene in foreign exchange markets to smooth out excessive short-run fluctuations in exchange rates&#10;C)It was forced on the world by the collapse of the Bretton Woods System&#10;D)It was formally recognized in the Jamaica Accords

Accepted Answer

Special Drawing Rights (SDRs) are not the primary reserve asset in the present international monetary system. The US dollar continues to be the dominant reserve currency, followed by the euro, Japanese yen, and British pound. SDRs were created by the International Monetary Fund (IMF) as a supplementary reserve asset but have not replaced existing currencies as the primary reserve asset.

Question 2

Balance of payments adjustment under the gold standard is now believed to have occurred primarily through:&#10;A)the price-specie-flow mechanism&#10;B)gold shipments&#10;C)stabilizing short-term capital flows and changes in national incomes&#10;D)free trade

Accepted Answer

C

Question 3

The present international monetary system is a:&#10;A)gold standard&#10;B)flexible exchange rate system&#10;C)managed exchange rate system&#10;D)a target zone system

Accepted Answer

The present international monetary system is best described as a managed exchange rate system, where exchange rates are determined by market forces but with occasional intervention by central banks and governments to stabilize their currencies.

Question 4

On which of the following principles was the Bretton Woods System based on?&#10;A)Fixed exchange rates&#10;B)Currency convertibility&#10;C)Free trade&#10;D)All of the above

Accepted Answer

The Bretton Woods System was based on all of the above principles - fixed exchange rates, currency convertibility, and free trade. The system created a fixed exchange rate system where currencies were pegged to the US dollar, which in turn was pegged to gold, ensuring currency convertibility. The system also promoted free trade through the creation of the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), both of which aimed to promote economic development and reduce barriers to trade.

Question 5

The fundamental cause for the collapse of the Bretton Woods System was:&#10;A)lack of confidence&#10;B)inadequate liquidity&#10;C)lack of an adequate adjustment mechanism&#10;D)all of the above

Accepted Answer

The lack of an adequate adjustment mechanism was the fundamental cause for the collapse of the Bretton Woods System. The fixed exchange rate system established by Bretton Woods was unable to respond to changing economic conditions and balance of payments deficits, leading to a lack of confidence and inadequate liquidity. However, while these were contributing factors to the collapse, they were not the fundamental cause.

Question 6

During the 1960s the U.S.attempted to correct its balance of payments deficits by:&#10;A)ad hoc measures&#10;B)devaluing the dollar&#10;C)deflating the economy&#10;D)restricting imports

Accepted Answer

Ad hoc measures were used by the U.S. during the 1960s to address balance of payments deficits, including policies aimed at encouraging exports and discouraging imports without resorting to devaluation or significant import restrictions.

Question 7

Which of the following statements about the gold standard is true?&#10;A)London was the undisputed center of international trade and finance&#10;B)international trade and international capital flows were mostly unrestricted&#10;C)International liquid capital flows were mostly stabilizing&#10;D)all of the above

Accepted Answer

A) London was the undisputed center of international trade and finance during the gold standard era as the British pound sterling was the reserve currency.
B) Under the gold standard, international trade and capital flows were mostly unrestricted as countries had to maintain fixed exchange rates, which made it difficult to impose restrictions on capital flows.
C) International liquid capital flows were mostly stabilizing as countries tend to export gold in surplus and import gold in deficit, which helped correct imbalances in the balance of payments.

Question 8

Which of the following was a primary cause of the U.S.balance of payments deficits during the late 1960s?:&#10;A)Capital outflows&#10;B)Domestic inflation&#10;C)Increased foreign competition&#10;D)All of the above

Accepted Answer

All three factors contributed to the U.S. balance of payments deficits during the late 1960s. Capital outflows occurred as the U.S. invested heavily overseas, while domestic inflation eroded the value of the dollar, making U.S. goods less competitive in the global market. At the same time, foreign competition increased, further exacerbating the trade deficit.

Question 9

The immediate cause for the collapse of the Bretton Woods System was:&#10;A)the expectation that the United States would soon be forced to devalue the dollar&#10;B)the massive flight of liquid capital from the United States&#10;C)the attempt by three small European central banks to convert part of their dollar holdings into gold at the Fed&#10;D)all of the above

Accepted Answer

All three factors contributed to the collapse of the Bretton Woods System. The expectation of a potential devaluation of the dollar eroded confidence in the system, and the massive flight of liquid capital from the United States put pressure on the fixed exchange rate. Additionally, the attempt by three small European central banks to convert some of their dollar holdings into gold destabilized the system further.

Question 10

The Bretton Woods System:&#10;A)allowed nation to change their par values when facing fundamental disequilibrium&#10;B)allowed nations to change their par values when facing a temporary disequilibrium&#10;C)did not allow nations to change their par exchange rates under any circumstance&#10;D)allowed only deficit nations to change their par values,but not surplus nations

Accepted Answer

The Bretton Woods System allowed nations to change their par values when facing fundamental disequilibrium, which referred to long-term imbalances in trade and payments that couldn't be corrected with short-term adjustments. This flexibility was supposed to prevent countries from resorting to competitive devaluations and protect the stability of the international monetary system.

Question 11

Which of the following did not represent an evolution of the Bretton Woods System?&#10;A)General Arrangements to Borrow&#10;B)managed floating&#10;C)standby arrangements&#10;D)Special Drawing Rights

Accepted Answer

The answer of Which of the following did not represent...

Question 12

The Bretton Woods System was a:&#10;A)gold standard&#10;B)managed floating exchange rate system&#10;C)gold-exchange standard&#10;D)crawling peg system

Accepted Answer

The answer of The Bretton Woods System was a:&#10;A)gold standard&#10;B)managed...

Question 13

Which is one of the most serious international economic problems facing the world today?&#10;A)Large volatility and disequilibria in exchange rates and frequent crises in emerging markets&#10;B)The rise of protectionism in developed countries and the high structural unemployment in Western Europe&#10;C)The restructuring problems of Eastern Europe and the former Soviet Union and the deep poverty of some of the poorest developing countries&#10;D)All of the above

Accepted Answer

The answer of Which is one of the most serious...

Question 14

The interwar period was characterized by:&#10;A)the operation of the gold standard&#10;B)chaotic conditions in international trade and finance&#10;C)free trade&#10;D)stabilizing international capital flows

Accepted Answer

The answer of The interwar period was characterized by:&#10;A)the operation...

Question 15

Which of the following statements is false with regard to 11 countries of the European monetary Union:&#10;A)They have adopted a single currency&#10;B)They have established a single central bank&#10;C)Conduct a common fiscal policy&#10;D)Conduct a single monetary policy

Accepted Answer

The answer of Which of the following statements is false...

Deck 21: The International Monetary System: Past, Present, and Future