Deck 10: The Globalization of International Finance

Question 1

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

Answer 1

False

Question 2

The Bretton Woods system of international economics relied on fixed exchange rates, rather than floating, to ensure stability in the world economy.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

To combat the instability of floating exchange rates, some regions are looking to pool sovereignty and create a common currency regulated by a regional central bank.

Question 5

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 6

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

Question 7

On the global currency market, over $4 trillion of currency changes hands every day.

Question 8

International organizations such as the IMF and World Bank often attach "strings" to financial assistance, known as Structural Adjustment Policies (SAPs).

Question 9

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

Question 10

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 11

The volume of currencies traded in global market is, by necessity, exactly equal to the amount of currency that domestic governments have in reserves.

Question 12

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

Question 13

The financial crisis of 2008 was caused solely by irresponsible lending by mortgage bankers.

Question 14

The primary achievable goal of every state in the global economy is to ensure that inflation and unemployment both remain low.

Question 15

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

Question 16

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

Question 17

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

Question 18

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 19

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 20

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

Question 21

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

Question 22

Which of the following is NOT an example of the way states' economies have become more closely linked through globalization?

A) A U. S. government shutdown closing national parks and museums
B) U. S. bond purchases by Chinese investors
C) Financial crises in the United States creating turbulence in world markets
D) Revolutions in the Middle East causing world oil price increases

Question 23

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

Question 24

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

Question 25

Which of the following is NOT a reason that the states involved in Bretton Woods were able to come to such a far-reaching level of agreement?

A) There were only a few states involved, making agreement easier.
B) The states involved shared a common currency and domestic economic strategy.
C) The United States and Britain were able to compromise between their contrasting ideologies.
D) The United States was willing to assume the burden of hegemonic leadership.

Question 26

Foreign direct investment refers to

A) purchasing significant amounts of a foreign country's currency.
B) purchasing substantial shares of a foreign company's stock or setting up production facilities in another country.
C) the purchase of large amounts of overseas goods; e.g., Wal-Mart purchases many of their products from China.
D) sales of military armaments to foreign governments.

Question 27

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) the international monetary system
C) currency adjustment
D) the capital mobility hypothesis

Question 28

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.

Question 29

The Bretton Woods system was based on what system of exchange rates?

A) Fixed-but-adjustable
B) Fixed
C) Floating
D) Unified

Question 30

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 payment 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.

Question 31

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) embedded liberalism

Question 32

Approximately how many financial crises have occurred in the world since the demise of the Bretton Woods system?

A) 7
B) 34
C) 71
D) 147

Question 33

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.

Question 34

The least globalized nations also tend to be the

A) largest in economic size.
B) richest and most powerful.
C) least developed and most autocratic.
D) smallest and most dependent on trade.

Question 35

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

Question 36

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

A) Globalization
B) Commercial liberalism
C) Bretton Woods
D) Arbitrage

Question 37

Even in a world with floating exchange rates, states have some ability to control the value of their currency.  What is an advantage of having a weak currency?

A) Exporting industries benefit from a weak currency as their goods are cheaper for foreigners to purchase.
B) Traveling citizens benefit from a weak currency as they can purchase more goods abroad.
C) Consumers benefit from a weak currency as they can afford to buy more imports.
D) There are no advantages to a weak currency.

Question 38

A government can control the value of its currency by

A) increasing or decreasing the supply of money.
B) adjusting interest rates.
C) avoiding the practice of arbitrage.
D) All of these are true.

Question 39

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

A) monetary policy
B) exchange rate
C) fiscal policy
D) money supply

Question 40

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) All of these are true.

Question 41

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 42

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

Question 43

Austerity measures are often enacted in countries that suffer from large balance of payments deficits.  Which of the following is NOT a negative consequence of austerity measures?

A) Deficit reduction
B) Decrease in government employment, thus increased unemployment
C) Decreased support for education and healthcare
D) Interest rate increases

Question 44

Describe the Bretton Woods system.  Why did the United States leave the Bretton Woods system and adopt floating exchange rates to determine currency values?

Question 45

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

Question 46

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 47

What are some of the positive and negative consequences to globalization?  Why would autocratic regimes tend to refuse to integrate into the global economy more so than democratic regimes?  Explain your answer.

Question 48

The G-20 is a group of countries that meets to discuss ways to deal with financial crises.  This groups includes the G-7, the largest economies in the world, and what other group of countries?

A) Largest emerging economies, such as Argentina and Brazil
B) Most trade-dependent countries, such as Jamaica and Vietnam
C) WTO member countries, such as Pakistan and Belize
D) Happiest countries, such as Finland and Sweden

Question 49

One phase of the Crisis of 2008 was _____.

A) arbitrage
B) capital controls
C) displacement
D) underinflation

Question 50

Greece has dealt with debt issues for years while simultaneously suffering from a stagnant, lagging economy.  Some argue that Greece must slash spending and enact severe austerity measures.  Others argue that these measures will make Greece's economy even worse by increasing unemployment.  Explain both sides of this argument. Which do you agree with? Why?