Deck 10: The Globalization of International Finance

Question 1

There is little, if any, advantage for a state to maintain a weak currency.

Answer 1

False

Question 2

Although the unpredictability of the system of floating exchange rates was damaging to the economies of Global South countries, Global North countries were able to use their large currency reserves to profit from it.

Answer 2

False

Question 3

The Bretton Woods conference at the end of World War II attempted to create a reliable mechanism for determining the value of countries' currencies in relation to one another.

Answer 3

True

Question 4

Geo-economics is the relationship between geography and the economic conditions and behavior of states that define their levels of production, trade, and consumption of goods and services.

Question 5

Commercial liberalism is an economic philosophy that advocates free markets, open trade, and free flowing capital.

Question 6

Unlike private investors, governments are not allowed to intervene in the currency market to affect the value of their own currency.

Question 7

Monetary policy affects two main economic variables: the supply of money in circulation and interest rates.

Question 8

The first phase of the 2008 global financial crisis is displacement, which refers to a change in the system that alters and creates profit opportunities for financial gain.

Question 9

Because of competing values, goals, and priorities, nation-states are limited in their ability to control monetary outcomes.

Question 10

The euro represents more than an economic policy. It is the end result of a decades-long process of economic integration.

Question 11

The economic crisis of 2008 has called into question whether the U.S. dollar should continue to be the dominant currency.

Question 12

The Marshall Plan provided Western European states billions of dollars in aid to buy the U.S. goods necessary to rebuild its war-torn economies.

Question 13

The primary reason governments attempt to manage their currencies is to prevent inflation.

Question 14

Globalization is a vague term that can be used in a multitude of ways but broadly defined is the increased integration of markets, trade, finance, and technology.

Question 15

Under a system of fixed exchange rates, the international market determines the value of a country's currency.

Question 16

Since the early 1970s, the world has had a system of fixed, but adjustable exchange rates.

Question 17

The "balance of payments" is a calculation summarizing a country's financial transactions with the external world.

Question 18

When the United States government backed up the dollar with gold, it was known as arbitrage.

Question 19

Most of the fiscal crises in the past thirty years have occurred in Global North rather than the Global South due to their more sophisticated financial systems.

Question 20

The study of the relationship between geography and the economic conditions and behavior of states that define their levels of production, trade, and consumption of goods and services is the field of ____________________.

A) geo-economics
B) geo-politics
C) monetary policy
D) globalization
E) international political economy

Question 21

What was the result of the U.S. change away from a policy of dollar convertibility?

A) States are forced to closely monitor their fiscal and monetary policies to avoid balance of payments deficits and inflation.
B) Total debt levels decreased.
C) Inflation increased throughout Global North countries.
D) Currency exchanges to a system of floating exchange rates.
E) All of the above are true.

Question 22

A government can control the value of its currency by

A) increasing or decreasing the supply of money.
B) adjusting interest rates.
C) practicing arbitrage.
D) both A and B.
E) all of the above.

Question 23

What important concession did Great Britain win support for at the Bretton Woods conference?

A) Strong government action by states facing economic problems
B) European economic integration
C) The Euro-a common European currency
D) A fixed rate of exchange for all currencies
E) No tariffs for tea

Question 24

The _________ was designed to get U.S. dollars into the hands of European countries that needed them the most.

A) Liberal International Economic Order
B) General Agreement on Tariffs and Trade
C) World Trade Organization
D) Marshall Plan
E) World Bank

Question 25

What is the outcome of very high inflation or hyperinflation?

A) The nations will have a balance of trade surplus.
B) The nation's exchange rate increases compared to other currencies.
C) Arbitrage of that nation's currency increases.
D) The currency of the nation becomes basically worthless.
E) It increases the value of the nation's currency.

Question 26

The ________ and the _____ were created to bolster financial and monetary relations under the Bretton Woods system.

A) Liberal International Economic Order; GATT
B) GATT; WTO
C) World Bank; International Monetary Fund
D) International Monetary Fund; WTO
E) World Bank; Liberal International Economic order

Question 27

The dominant economic approach during the Bretton Woods system, which combined open international markets with domestic state intervention to attain such goals as full employment and social welfare is called _____________.

A) mercantilism
B) commercial liberalism
C) fixed exchange rates
D) international liquidity
E) embedded liberalism

Question 28

Governmental policy tools for managing economies including taxation and spending is called __________ .

A) monetary policy
B) exchange rate
C) fiscal policy
D) money supply
E) geo-economics

Question 29

In 1971, _______ announced that the United States would no longer exchange dollars for gold.

A) President Richard Nixon
B) Treasury Secretary Robert Rubin
C) Treasury Secretary Alan Greenspan
D) Economist John Maynard Keynes
E) President Lyndon B. Johnson

Question 30

The British economist who played a crucial role at the Bretton Woods conference was _________ .

A) Adam Smith
B) Winston Churchill
C) Erwin Rommell
D) John Maynard Keynes
E) Cornell Hull

Question 31

____________________ is an economic theory advocating free markets and the removal of barriers to the flow of trade and capital as a locomotive for prosperity.

A) Globalization
B) Commercial liberalism
C) Bretton Woods
D) Arbitrage
E) Geo-economics

Question 32

__________ is reserve assets used to settle international accounts.

A) international liquidity
B) dollar overhang
C) floating exchange rate
D) dollar convertibility
E) capital control

Question 33

Examples of how a system based on monetary policy works are

A) money must be widely accepted, so people can buy from other people with money.
B) money must only be acceptable in limited markets in order to increase its value.
C) money must act as a standard of deferred payment, therefore managing to maintain its purchasing power at a later time.
D) money must be fluid enough to be bartered and not hold its value for deferred payments.
E) both A and C.

Question 34

Dollar convertibility refers to

A) the ability to exchange dollars for any other currency.
B) the ability to convert dollars to commodities such as exported goods.
C) the ability of the World Bank to devalue the dollar.
D) the pricing of a barrel of oil in U.S. dollars.
E) the U.S. commitment to exchange gold for dollars.

Question 35

The policy reforms required by the International Monetary Fund (IMF) and World Bank to receive assistance are called __________ .

A) Devaluation programs
B) Structural Adjustment Policies (SAPs)
C) Capital controls
D) Bretton Woods programs
E) Liberal International Economic Order (LIEO)

Question 36

____________________is (are) the result of an unmanaged process where market forces and private investors, rather than governments, influence the relative rate of exchange for currencies between countries.

A) Fixed exchange rates
B) Monetary policies
C) Floating exchange rates
D) Dollarization
E) Inflation

Question 37

The financial procedure that is used to calculate the values of currencies and credits when capital is transferred across borders through trade, investment, foreign aid, and loans is called _________.

A) capital flight
B) international monetary system
C) currency adjustment
D) the capital mobility hypothesis
E) arbitrage

Question 38

The lessons learned from the global economic collapse of the 1930s included

A) the major economies could not maintain their fixed exchange rate regime.
B) the resultant flexible regime was highly unstable.
C) there were speculative attacks on currencies and currency devaluations.
D) the global economy collapsed into closed imperial blocks.
E) all of the above.

Question 39

A floating exchange rate means that

A) market forces rather than government intervention determines currency values.
B) the IMF will allow weak currencies to sink as a way of preserving the value of strong currencies.
C) all currencies will be converted to their respective values of sterling silver prior to international purchases.
D) the value of a country's currency is lower overseas than at home.
E) transnational banks will be discouraged from relying on only one currency in international business.

Question 40

Advocates of ____________________ policy believe that by controlling the growth of the money supply, governments can regulate their nations' economic activity and control inflation.

A) exchange rate
B) fiscal
C) commercial liberalism
D) monetary
E) balance of payment

Question 41

Why does the globalization of finance have implications for international trade?

Question 42

The pooling of sovereignty to create a common currency and a single monetary system for members in a region is a(n) _________ .

A) trade pact
B) regional currency union
C) international monetary system
D) floating exchange rate
E) geopolitical currency

Question 43

____________________ refers to the increasing transnationalization or centralization of financial markets through the worldwide integration of capital flows.

Question 44

____________________ is the study of the intersection of politics and economics that illuminates the reasons why changes occur and the distribution of states' wealth and power.

Question 45

What is globalization?

Question 46

What are the two principle economic variables at work in monetary policy?

Question 47

The Bretton Woods rested on three political bases, which were _______, _______, and ______.

Question 48

Explain the derivatives market.

Question 49

In what ways can private investors affect a currency's value? In what ways can a government's central bank affect the value of the state's currency? How are the role and the interests of the government different from that of a private investor?

Question 50

__________ is a system in which a government sets the value of its currency so that the exchange value is not free to fluctuate in the global money market.

Question 51

Globalization has caused an explosion in the volume of financial transactions that occur every day. What are the factors that contributed to this increase in volume? What are the potential positive and negative effects of the globalization of finance?

Question 52

Describe the practice of dollar convertibility. How did this impact the international economy? How did it impact the domestic economy of the United States? Why was it ultimately unsustainable? What system took its place?

Question 53

One phase of the Crisis of 2008 was __________.

A) arbitrage
B) capital controls
C) displacement
D) underinflation
E) geo-economics

Question 54

The sum of a country's positive financial transactions with the external world minus the country's total international debt is known as its _________________________.

Question 55

What are the three functions that money serves?

Question 56

Discuss why the United States left the Bretton Woods system and went with floating exchange rates to determine currency values.

Question 57

A ____________________ is the kind of system constructed by the European Union when it created the single European currency, the euro.

Question 58

____________________ is the selling of one currency (or product) and purchase of another to make a profit on changing exchange rates.

Question 59

Describe the economic crisis of 2008. Describe the four stages of the crisis. What have been the impacts of the crisis? How has the crisis called into question the free market-oriented "Washington Consensus" that has dominated since World War II? How have the powerful countries dealt with the crisis?

Question 60

What is "dollar convertibility"?