Question 1

The United States abandoned the Bretton Woods system of exchange rates in

Accepted Answer

The United States abandoned the Bretton Woods system of exchange rates in the 1970s. Specifically, on August 15, 1971, President Nixon announced that the United States would no longer convert dollars to gold at a fixed value, effectively ending the Bretton Woods system.

Question 2

If currencies around the world are based on the gold standard,and Japan raises the amount of gold for which the yen will trade,then holding all else constant

Accepted Answer

If Japan raises the amount of gold for which the yen will trade, it means the value of the yen has increased relative to gold. This will increase the demand for yen, causing it to appreciate against other currencies, including the US dollar. Therefore, the correct answer is B, the yen will appreciate against the dollar. The other choices are incorrect because they do not reflect the impact of this change on the currency exchange rate between the US dollar and the Japanese yen.

Question 3

When the value of a currency is determined mostly by demand and supply,but with occasional government intervention,the exchange rate system is defined as

Accepted Answer

The description fits the definition of a managed float exchange rate system, where the currency value is primarily determined by market forces of demand and supply, but the government may occasionally intervene to influence the exchange rate. In a fixed exchange rate system, the value of the currency is fixed to another currency or gold, while in a floating exchange rate system, the value is entirely determined by market forces with no government intervention. Bretton Woods was a fixed exchange rate system that operated from 1944 to 1971.

Question 4

The gold standard is an example of

Accepted Answer

The gold standard is a system of fixed exchange rates where the value of a country's currency is tied to a specific amount of gold. This means that the exchange rates between currencies are fixed and do not fluctuate based on market forces.

Question 5

China's exchange rate system from 1994 through 2005 is an example of

Accepted Answer

China's exchange rate system from 1994 through 2005 was a fixed exchange rate system, where the value of the yuan was pegged to the U.S. dollar at a fixed rate.

Question 6

The current exchange rate system in the United States is best described as a

Accepted Answer

The current exchange rate system in the United States is a managed float exchange rate system, meaning that the exchange rate value is determined by the supply and demand in the foreign exchange market, but can also be influenced by government policies and interventions. The US dollar is not fixed to a specific commodity, such as gold or silver, and there is no formal agreement with other countries to maintain a specific exchange rate.

Question 7

Why did the United States abandon the gold standard in the 1930s?

Accepted Answer

The Great Depression led to a steep decline in economic activity and a deflationary spiral. Abandoning the gold standard allowed for a more flexible monetary policy that could stimulate the economy by increasing the money supply.

Question 8

Suppose an economy's exchange rate system is the gold standard and vast tracks of gold are discovered,as is what happened in the United States in 1849.If the economy is at full employment,what should this discovery do?

Accepted Answer

In a gold standard system, the money supply is directly linked to the amount of gold held by the central bank. Therefore, the discovery of vast tracks of gold would increase the money supply. If the economy is at full employment, this increase in the money supply would lead to inflation as there would be more money chasing the same amount of goods and services.

Question 9

The Bretton Woods exchange rate system was a

Accepted Answer

The Bretton Woods exchange rate system was a fixed exchange rate system where currencies were pegged to the US dollar, which in turn was pegged to gold. Central banks intervened in foreign exchange markets to maintain the exchange rate within a narrow band of fluctuations.

Question 10

The exchange rate system agreed to in 1944,in which the U.S.government agreed to buy or sell gold at a fixed price of $35 per ounce,is referred to as

Accepted Answer

The exchange rate system agreed to in 1944, in which the U.S. government agreed to buy or sell gold at a fixed price of $35 per ounce, is commonly known as the Bretton Woods System. It was named after the location of the conference that established it, which was held in Bretton Woods, New Hampshire. The gold standard was a similar system, but it had been abandoned by most countries at that time. A floating currency standard is a system in which exchange rates are determined by supply and demand in the foreign exchange market, without any interventions by governments or central banks. A flexible exchange rate system is another name for the floating currency standard.

Question 11

If a country's currency is determined only by the demand and supply for that country's currency,the country is said to have a

Accepted Answer

When a country's currency is determined solely by the market forces of supply and demand, it is said to have a floating exchange rate. In this system, the value of the currency fluctuates freely based on factors such as economic conditions, political events, and investor sentiment. Governments and central banks may still intervene in the market to influence the exchange rate, but they generally do so less frequently and with less direct control than in a fixed exchange rate or gold standard system. A managed float is a similar system, but with some degree of government intervention or guidance.

Question 12

When the value of a currency is determined ________,the exchange rate system is defined as managed float.

Accepted Answer

In a managed float exchange rate system, the value of a currency is mostly determined by supply and demand in the foreign exchange market, but the government may occasionally intervene to influence its value through various measures such as buying or selling foreign currencies or adjusting interest rates. Thus, while market forces play a major role, the government still has some control over the currency's value.

Question 13

Under which exchange rate system was a dollar redeemable for gold only if the dollar was presented by a foreign central bank?

Accepted Answer

The Bretton Woods System was a fixed exchange rate system established in 1944, in which the US dollar was the anchor currency and tied to gold at a fixed rate. Other currencies were fixed to the US dollar. However, the US government could redeem dollars for gold only if they were presented by foreign central banks, not by individuals or entities within the US. This created a gold exchange standard rather than a full gold standard.

Question 14

During what period of time did the United States most consistently adhere to the gold standard?

Accepted Answer

The United States most consistently adhered to the gold standard from the late nineteenth century until the 1930s. During this period, the United States maintained a fixed exchange rate with gold and used gold as the standard for international trade. The gold standard was abandoned in the 1930s due to the Great Depression and the increasing costs of maintaining the fixed exchange rate.

Question 15

From the nineteenth century until the 1930s,the United states most consistently adhered to

Accepted Answer

From the nineteenth century until the 1930s, the United States was predominantly on the gold standard, where the value of the currency was directly tied to the value of gold.

Question 16

In the United States today,how much gold will the Federal Reserve give you in exchange for $1?

Accepted Answer

The Federal Reserve does not exchange gold for dollars or vice versa. The U.S. left the gold standard in 1971, meaning dollars are no longer convertible to gold by the government or Federal Reserve.

Question 17

Under the Bretton Woods exchange rate system,set up in 1944,which of the following was true?

Accepted Answer

Under the Bretton Woods system, foreign central banks could exchange dollars for gold with the U.S. government, establishing a fixed exchange rate system where the U.S. dollar was pegged to gold. This was a cornerstone of the international financial system post-World War II until the early 1970s.

Question 18

When the value of a currency is determined ________,the exchange rate system is defined as a floating exchange rate system.

Accepted Answer

In a floating exchange rate system, the value of a currency is determined mostly by supply and demand in the foreign exchange market, without significant government intervention or control. Therefore, the best choice is A), only by supply and demand.

Question 19

Under the gold standard,to increase the money supply in the country,the government must

Accepted Answer

Under the gold standard, the value of a country's currency was directly linked to the amount of gold reserves it held. Therefore, to increase the money supply, the government had to have enough gold to back up the increase in currency. Printing more currency without sufficient gold reserves could lead to inflation and a decrease in the value of the currency. Buying foreign currencies with dollars or increasing the value of the currency on foreign exchange markets do not necessarily increase the money supply within the country.

Question 20

In what year was the Bretton Woods system of currency exchange set up?

Accepted Answer

The Bretton Woods system of currency exchange was set up in 1944 during a conference held in Bretton Woods, New Hampshire, where representatives from 44 Allied nations gathered to establish a new international monetary system. Options A, B, and D are incorrect as they fall outside the relevant time period.

Quiz 19: The International Financial System