Question 1

Which of the following is not a condition of the international gold standard? That a nation must:

Accepted Answer

The international gold standard required nations to convert gold into paper currency, permit gold to be freely imported and exported, and define its monetary unit in terms of a stipulated amount of gold. However, it did not require nations to tolerate wide fluctuations in its exchange rate. In fact, nations were expected to maintain stable exchange rates under the gold standard.

Question 2

Which of the following does not represent a form of international liquidity?

Accepted Answer

U.S. government securities are not considered a form of international liquidity, as they are not widely accepted as a means of payment in international transactions. IMF reserve positions, general arrangements to borrow, and reciprocal currency arrangements, on the other hand, are all examples of international liquidity.

Question 3

Which of the following is a main central bank function of the International Monetary Fund?

Accepted Answer

The main central bank function of the International Monetary Fund (IMF) is the granting of loans to member nations. The IMF provides financial assistance to countries experiencing economic crisis, with the goal of promoting international monetary cooperation and exchange rate stability. The IMF does not conduct open market operations, issue gold certificates, or provide monetary policy for member nations.

Question 4

Which of the following is not considered an "owned" reserve?

Accepted Answer

National currencies, gold, and special drawing rights are considered owned reserves as they are assets held by central banks or governments. An oil facility is not a financial asset and therefore not considered an "owned" reserve.

Question 5

The purpose of international reserves is to finance:

Accepted Answer

International reserves are used to finance short-term deficits in the balance of payments. These reserves are typically composed of foreign currency reserves, gold reserves, and special drawing rights (SDRs) held by a country's central bank. When a country experiences a deficit in its current account, it can draw on its international reserves to finance this shortfall and prevent a currency crisis.

Question 6

International trade and investment are most frequently financed by the U.S.dollar and the:

Accepted Answer

The British pound is one of the most commonly used currencies in international trade and investment, alongside the U.S. dollar.

Question 7

A dollar shortage would indicate that the dollar is:

Accepted Answer

The answer of A dollar shortage would indicate that the...

Question 8

Which of the following assets makes use of the basket valuation technique?

Accepted Answer

Special drawing rights (SDRs) make use of the basket valuation technique, which is a method of determining the value of a currency by taking into account the value of a basket of other currencies. SDRs are a type of international reserve asset created by the International Monetary Fund (IMF) and are used to supplement the existing official reserves of member countries. The value of SDRs is determined by the value of a basket of currencies including the US dollar, euro, Japanese yen, British pound sterling, and the Chinese renminbi.

Question 9

The U.S.gold outflow that began in the late 1940s and continued through the 1960s was due in part to:

Accepted Answer

The U.S. gold outflow was due in part to an overvalued dollar. Under the Bretton Woods system, the U.S. dollar was pegged to gold at a rate of $35 per ounce. However, the U.S. ran persistent trade deficits in the 1960s, leading to a glut of dollars in foreign central bank reserves. As confidence in the U.S. ability to maintain the peg waned, foreign governments began demanding gold in exchange for dollars. This outflow of gold put pressure on the U.S. to either devalue the dollar (which it did in 1971) or risk running out of gold reserves.

Question 10

With an international gold standard,if a country ended up with a deficit from the balances on its current and capital accounts,it would:

Accepted Answer

With an international gold standard, the exchange rate between countries is fixed as per the gold reserves held by each country. If a country has a deficit from the balances on its current and capital accounts, it means that it has imported more goods and services and invested more money abroad than it has exported and received in return. This would lead to a depletion of its gold reserves. In order to settle the balance, the country would need to export gold to other countries in return for foreign currency. Hence choice B is the correct option.

Question 11

Which of the following is not considered a "borrowed" reserve?

Accepted Answer

The answer of Which of the following is not considered...

Question 12

Which of the following is not a characteristic of the Eurodollar market? It:

Accepted Answer

The Eurodollar market grew primarily due to the need for dollar-denominated transactions outside the U.S., not because of the deregulation of interest rate ceilings on U.S. savings accounts.

Question 13

All of the following exchange-rate systems require international reserves to finance balance-of-payments disequilibriums except:

Accepted Answer

Freely floating exchange rates do not require international reserves to finance balance-of-payments disequilibriums. This is because under a freely floating exchange rate system, exchange rates are determined purely by market forces of supply and demand, without any government intervention. As such, any balance-of-payments disequilibriums will be automatically corrected by market forces, without any need for government intervention or use of international reserves.

Question 14

Which of the following constitute(s) the largest component of the world's international reserves?

Accepted Answer

Foreign currencies constitute the largest component of the world's international reserves. According to the International Monetary Fund (IMF), as of 2021, foreign currency holdings make up around 62% of the global total, while gold accounts for around 11%. Special drawing rights and IMF drawings make up a much smaller percentage of the total reserves.

Question 15

Swap agreements are generally conducted by the:

Accepted Answer

Swap agreements are generally conducted by the Federal Reserve with foreign central banks to manage currency exchange rates and provide liquidity.

Question 16

The Federal Reserve's swap network represents:

Accepted Answer

The Federal Reserve's swap network represents short-term borrowing among countries. This allows central banks to provide liquidity in their own currencies to domestic financial institutions during times of need. The swap network helps to stabilize the global financial system by providing a source of emergency funding in times of financial stress.

Question 17

Which of the following assets was (were) created in 1970 to provide additional international liquidity,in the belief that increasing world trade requires more liquidity for larger expected payments imbalances?

Accepted Answer

Special drawing rights (SDRs) were created in 1970 as an asset by the International Monetary Fund (IMF) to provide additional international liquidity. SDRs are a form of international reserve assets that can be exchanged among member states for freely usable currencies. The creation of SDRs was seen as necessary to address the increased demand for liquidity resulting from larger expected payment imbalances in world trade.

Question 18

Eurodollars are:

Accepted Answer

Eurodollars are dollar-denominated deposits held in overseas banks, primarily located in Europe. They are not European currencies and do not refer to transactions made in Europe or the United States.

Question 19

The U.S.dollar glut of the 1960s was due in part to:

Accepted Answer

The U.S. dollar glut of the 1960s was due in part to an overvalued dollar, which led to a balance of payments deficit as it became cheaper for Americans to buy foreign goods and more expensive for foreigners to buy American goods. This deficit led to an increase in the supply of dollars in international markets.

Question 20

The currencies generally referred to as "reserve currencies" are the:

Accepted Answer

Reserve currencies are those currencies that are widely held by governments and institutions as part of their foreign exchange reserves. The British pound and U.S.dollar are two of the most commonly held reserve currencies in the world. The Japanese yen and Swiss franc are also important currencies, but they are not as widely held as reserves compared to the pound and dollar.

Quiz 17: International Banking: Reserves, Debt, and Risk