Question 1

The price of one country's currency in units of another currency or commodity is the ________.

Accepted Answer

The foreign currency exchange rate refers to the price of one country's currency in units of another currency or commodity. The other options are either not relevant or not accurate definitions of exchange rates.

Question 2

Members of the International Monetary Fund may settle transactions among themselves by transferring Special Drawing Rights (SDRs).

Accepted Answer

This is true. Members of the IMF may settle transactions among themselves by transferring Special Drawing Rights (SDRs). The SDR is an international reserve asset created by the IMF in 1969 to supplement the existing official reserves of member countries. It is not a currency, but rather a potential claim on the freely usable currencies of IMF members.

Question 3

A United States firm had chosen to deposit money in a British bank and have it denominated in U.S. dollars. This is an example of a (an) ________ deposit.

Accepted Answer

A Eurodollar deposit is a U.S. dollar-denominated deposit in a bank outside the United States. Therefore, a U.S. firm depositing money in a British bank and denominated in U.S. dollars is an example of a Eurodollar deposit.

Question 4

The International Monetary Fund (IMF)

Accepted Answer

The IMF has provided large loans to Russia, South Korea, and Brazil in recent years, was created as a result of the Bretton Woods Agreement, and aids countries with balance of payment and exchange rate problems. Therefore, the correct answer is D, which represents all of the above options.

Question 5

The post WWII international monetary agreement that was developed in 1944 is known as the ________.

Accepted Answer

The Bretton Woods Agreement was developed in 1944 to establish a new international monetary system after World War II. The United Nations and the Yalta Agreement were also established in 1945, but they were not related to the international monetary system. The League of Nations was dissolved in 1946, before the Bretton Woods Agreement was established.

Question 6

Another name for the International Bank for Reconstruction and Development is

Accepted Answer

The International Bank for Reconstruction and Development is commonly referred to as the World Bank.

Question 7

You check the Yahoo.com currency web page and find that the Japanese yen is trading at a rate of
113 yen per dollar. This rate of exchange is typically referred to as the ________.

Accepted Answer

The spot rate refers to the current exchange rate at which one currency can be exchanged for another currency for immediate delivery or settlement. In this case, the spot rate is 113 yen per dollar, which means that one can currently exchange one dollar for 113 Japanese yen. The other options (forward rate, par rate, 113 rate) do not accurately describe the current exchange rate.

Question 8

The ________, as of December 2007, is the common currency for 13 of the countries that are members of the European Union.

Accepted Answer

As of December 2007, the common currency for 13 of the countries that are members of the European Union is the Euro. Choice A (SDR) is a monetary reserve asset created by the International Monetary Fund, Choice B (ECU) was the precursor to the Euro but is no longer in use, and Choice D (Yugo) is not a currency at all.

Question 9

A speculative technique whereby the speculator sells an asset that he/she doesn't own, such as a currency, to another party for delivery at a future date is called ________.

Accepted Answer

Selling short is a speculative technique in which the seller doesn't own the asset being sold. Instead, the seller borrows the asset and sells it to the buyer, with an agreement to deliver the asset at a future date. The seller profits if the asset's price declines, as the seller can buy back the asset at a lower price to return it to the lender and keep the difference as profit. Selling ahead and selling behind are not commonly used terms in finance, and selling long refers to buying a security with the expectation of selling it at a higher price in the future.

Question 10

Today, the United States has been ejected from the International Monetary Fund for refusal to pay annual dues.

Accepted Answer

There is no current indication or announcement that the United States has been ejected from the International Monetary Fund for refusal to pay annual dues. The United States is one of the founding members of the IMF and has a significant influence in its operations. However, in the past, the U.S. has threatened to withhold funding to the IMF, and tensions between the U.S. and the IMF have existed in the past.

Question 11

A country that regulates the rate at which its currency is exchanged for all other currencies is considered to have a ________ exchange rate system.

Accepted Answer

A fixed or managed exchange rate system is one in which the government or central bank of a country sets a specific exchange rate for its currency against other currencies and takes actions to maintain that rate. This contrasts with a floating or flexible exchange rate system, in which the value of a currency is determined by market forces without government intervention. Forward and spot rates are not types of exchange rate systems, but rather refer to the timing of currency exchanges.

Question 12

Under the gold standard of currency exchange that existed from 1879 to 1914, an ounce of gold cost $20.67 in U.S. dollars and £4.2474 in British pounds. Therefore, the exchange rate of pounds per dollar under this fixed exchange regime was

Accepted Answer

The exchange rate can be calculated by dividing the price of one unit of currency in one country by the price of one unit of currency in another country. In this case, we can find the pounds per dollar exchange rate by dividing the price of one pound in dollars by the price of one dollar in pounds.

Using the given information, we can convert the price of £1 to dollars:
£1 = $4.2474
So, the price of one dollar in pounds is:
$1 = £1/4.2474

To find the pounds per dollar exchange rate, we divide the price of one pound in dollars by the price of one dollar in pounds:
£1/$1 = (£1/$4.2474) = £0.2055/$

Therefore, the correct choice is B).

Question 13

The increase in value of a currency pegged to gold or another currency is known as ________.

Accepted Answer

The increase in value of a currency pegged to gold or another currency is known as revaluation. Appreciation refers to an increase in the value of a currency due to market forces, while strengthened and hardened are not commonly used terms in the context of currency valuation.

Question 14

A currency that has decreased in foreign exchange value relative to a floating rate currency has ________.

Accepted Answer

A currency that has decreased in foreign exchange value relative to a floating rate currency has depreciated.

Question 15

A currency that has increased in foreign exchange value relative to a floating rate currency has ________.

Accepted Answer

When a currency increases in foreign exchange value, it has appreciated. This means that it is worth more in comparison to other currencies. Revalued is also correct but less commonly used. Choice B, violating international trade agreements, is not necessarily true and is not related to an increase in currency value. Deteriorated, on the other hand, would be used if the currency has decreased in value.

Question 16

World War I caused the suspension of the gold standard for fixed international exchange rates because the war

Accepted Answer

The suspension of the gold standard was due to the interruption of the free movement of gold caused by the war, as many countries hoarded gold to pay for the costs of the war, leading to a shortage of gold for international transactions.

Question 17

A ________ currency is expected to devalue or depreciate relative to major currencies.

Accepted Answer

A soft or weak currency is one that is expected to devalue or depreciate relative to major currencies. This means that the value of the currency is decreasing compared to other currencies, making it less desirable for investors and traders. A hard or strong currency, on the other hand, is expected to increase in value relative to other currencies. A deteriorated or devalued currency may also suggest a weakening currency, but these terms imply a specific event or circumstance that has caused the currency to lose value, rather than a general expectation of future depreciation.

Question 18

Which of the following investment strategies will allow me to make a profit if I anticipate that the value of the Euro, a currency that I do not own, is going to fall over the next 90 days and I am correct in my prediction?

Accepted Answer

Selling Euros short means borrowing Euros from a broker, selling them at the current exchange rate, and then buying them back later when the value falls. This will result in a profit if the Euro does indeed fall in value over the next 90 days. Buying Euros short would be the opposite - buying Euros in the hope of selling them later at a higher price, which would not result in a profit if the value falls. Selling dollars short and buying Euros long would not be effective strategies for making a profit if the Euro falls in value.

Question 19

Under the terms of Bretton Woods countries tried to maintain the value of their currencies to within 1% of a hybrid security made up of the U.S. dollar, British pound, and Japanese yen.

Accepted Answer

Under the Bretton Woods system, countries aimed to maintain their currency values within a fixed exchange rate margin of 1% to the value of gold, and the U.S. dollar was the primary reserve currency linked to gold.

Question 20

The drop in value of a currency pegged to gold or another currency is known as ________.

Accepted Answer

Devaluation refers to the deliberate drop in value of a currency that is pegged to gold or another currency. Revaluation, on the other hand, refers to the deliberate increase in value of a currency. Depreciation is a general term used to describe a drop in value of anything, while deterioration typically refers to a decline in quality or condition. Therefore, the best choice is D, devaluation, as it specifically refers to the drop in value of a currency that is pegged to gold or another currency.

Quiz 3: The International Monetary System