Question 1

Beginning in 1991 Argentina conducted its monetary policy through a currency board.In January 2002,Argentina abandoned the currency board and allowed its currency to float against other currencies.The country took this step because:
A)the Argentine Peso had grown too strong against major trading powers thus the currency board policies were hurting the domestic economy.
B)the United States required the action as a prerequisite to finalizing a free trade zone with all of North,South,and Central America.
C)the Argentine government lost the ability to maintain the pegged relationship as in fact investors and traders perceived a lack of equality between the Argentine Peso and the U.S.dollar.
D)all of the above

Accepted Answer

The Argentine government lost the ability to maintain the pegged relationship as investors and traders perceived a lack of equality between the Argentine Peso and the U.S. dollar. This resulted in the abandonment of the currency board and allowing the currency to float against other currencies. Reasons A and B are not accurate explanations.

Question 2

The ability of a country to profit from its ability to print money is known as:
A)profiteering.
B)dollarization.
C)seignorage.
D)inflation.

Accepted Answer

Seignorage refers to the difference between the cost of producing money and its face value. When a country has the ability to print money, it can create new money at a low cost and then use it to pay off its debts or fund government programs, thereby generating profit. However, if too much money is printed, it can lead to inflation, which can erode the value of the currency and reduce the profitability of seignorage.

Question 3

Which of the following factors make it difficult for emerging market economies to choose a specific currency regime?
A)weak fiscal,financial,and monetary institutions
B)the tendency for commerce to allow currency substitution and the denomination of liabilities in dollars
C)the emerging market's vulnerability to sudden stoppages of outside capital flows
D)all of the above

Accepted Answer

All three factors mentioned in options A, B, and C make it difficult for emerging market economies to choose a specific currency regime. Weak fiscal, financial, and monetary institutions can lead to instability in the currency regime, while commerce allowing currency substitution and the denomination of liabilities in dollars can reduce the effectiveness of any chosen currency regime. The vulnerability of emerging market economies to sudden stoppages of outside capital flows makes it difficult for them to maintain a stable currency regime over the long term.

Question 4

Explain how all exchange rate regimes must deal with the trade-off between rules and discretion,as well as between cooperation and independence.List and classified two International Monetary Systems based on these four quadrants.

Accepted Answer

The answer of Explain how all exchange rate regimes must...

Question 5

In January 2000 Ecuador officially replaced its national currency,the Ecuadorian sucre,with the U.S.dollar.This practice is known as:
A)bi-currencyism.
B)securitization
C)a Yankee bailout.
D)dollarization.

Accepted Answer

The practice of replacing a national currency with the U.S. dollar is known as dollarization.

Question 6

List and explain three benefits the euro would generate for the states participating in the European Economic and Monetary Union.

Accepted Answer

The answer of List and explain three benefits the euro...

Question 7

The People's Republic of China has two official currencies,the Chinese renminbi (RMB)and the yuan (CNY).

Accepted Answer

The People's Republic of China has one official currency, the renminbi (RMB), and the yuan (CNY) is the primary unit of the renminbi, not a separate currency.

Question 8

A currency board exists when a country's central bank commits to back its money supply entirely with foreign reserves at all times.

Accepted Answer

This is the definition of a currency board.

Question 9

Dollarization is a common solution for countries suffering from currency revaluation.

Accepted Answer

Dollarization is typically adopted by countries facing hyperinflation or severe devaluation of their own currency, not revaluation. It involves using a foreign currency, like the US dollar, in place of or alongside the domestic currency to stabilize the economy.

Question 10

The members of the EU do have relative freedom to set their own fiscal policies- government spending,taxation,and the creation of government surpluses or deficits.They are expected to keep deficit spending within limits.

Accepted Answer

This is true, as long as their deficit spending stays within the limits set by the EU's Stability and Growth Pact.

Question 11

In January 2002,the Argentine Peso changed in value from Peso 1.00/$ to Peso 1.40/$,thus,the Argentine Peso ________ against the U.S.dollar.
A)strengthened
B)weakened
C)remained neutral
D)all of the above

Accepted Answer

The value of the Argentine Peso increased from Peso 1.00/$ to Peso 1.40/$, which means that it now takes more pesos to buy one U.S. dollar. This indicates that the Argentine Peso weakened against the U.S. dollar.

Question 12

You have been hired as a consultant to the central bank for a country that has for many years suffered from repeated currency crises and depends heavily on the U.S.financial and product markets.Which of the following policies would have the greatest effectiveness for reducing currency volatility of the client country with the United States?
A)dollarization
B)an exchange rate pegged to the U.S.dollar
C)an exchange rate with a fixed price per ounce of gold
D)an internationally floating exchange rate

Accepted Answer

The answer of You have been hired as a consultant...

Question 13

All exchange rate regimes must deal with the trade-off between rules and discretion as well as between cooperation and independence.

Accepted Answer

This statement is true as all exchange rate regimes, whether fixed or flexible, require a balance between having rules in place to guide decision-making and allowing for some discretion or flexibility. Additionally, countries must also balance the need for cooperation with other nations in managing exchange rates with the desire for independence in setting their own monetary policies.

Question 14

Regime structures like the gold standard required no cooperative policies among countries,only the assurance that all would abide by the "rules of the game."

Accepted Answer

The gold standard is an example of a regime structure that only required adherence to pre-established rules, rather than cooperation among countries.

Question 15

Which of the following is NOT an argument against dollarization?
A)Dollarization causes a loss of sovereignty over domestic monetary policy.
B)Dollarization removes currency volatility against the dollar.
C)Dollarization causes the country to lose the power of seignorage.
D)The central bank of the dollarized country loses the role of lender of last resort.

Accepted Answer

Removing currency volatility against the dollar is actually a potential benefit of dollarization, not an argument against it.

Question 16

Bretton Woods required less in the way of cooperation among countries than did the gold standard.

Accepted Answer

Bretton Woods required much more cooperation among countries than the gold standard, as it involved a fixed exchange rate system based on the US dollar, which required international cooperation to maintain.

Question 17

A currency board exists when a country's central bank commits to back a fraction of its money base with foreign reserves at all times.

Accepted Answer

A currency board exists when a country's central bank commits to back its entire money base with foreign reserves at all times, not just a fraction.

Question 18

The following are examples of degrees of internationalization of an international currency EXCEPT:
A)First degree of internationalization is when an international currency becomes readily accessible for trade.
B)A second degree of internationalization is when an international currency is used for international investment.
C)A third degree of internationalization is when an international currency is used for international investment.
D)A third degree of internationalization is when an international currency takes the role of a reserve currency.

Accepted Answer

The third degree of internationalization is duplicated in the answer choices. It is listed in both B and C. C is a duplicate and should be removed.

Question 19

Of the following,which is NOT a trade-off that must be dealt with in any exchange rate regime?
A)cooperation vs independence
B)rules vs discretionary action
C)dollars vs pounds
D)All of the above are rate regime trade-offs.

Accepted Answer

The choice between dollars and pounds is not a trade-off that must be dealt with in any exchange rate regime. The other choices -- cooperation vs independence and rules vs discretionary action -- are trade-offs that must be considered in any exchange rate regime.

Question 20

The European Central Bank is a strong and independent central bank that has completely replaced the individual central banks of the countries that use the euro as their currency.

Accepted Answer

The European Central Bank (ECB) is indeed a strong and independent central bank, but it has not completely replaced the individual central banks of the countries that use the euro. These national central banks operate alongside the ECB as part of the Eurosystem, each with its own roles and responsibilities.

Quiz 2: The International Monetary System

Beginning in 1991 Argentina conducted its monetary policy through a currency board.In January 2002,Argentina abandoned the currency board and allowed its currency to float against other currencies.The country took this step because:

The ability of a country to profit from its ability to print money is known as:

Which of the following factors make it difficult for emerging market economies to choose a specific currency regime?

Explain how all exchange rate regimes must deal with the trade-off between rules and discretion,as well as between cooperation and independence.List and classified two International Monetary Systems based on these four quadrants.

In January 2000 Ecuador officially replaced its national currency,the Ecuadorian sucre,with the U.S.dollar.This practice is known as: