Question 1

The Bretton Woods Agreement provided for the devaluation of a currency to enable:

Accepted Answer

The Bretton Woods Agreement provided for the devaluation of a currency to enable countries to manage temporary but serious downturns. This was done by allowing countries to adjust their exchange rates in response to economic shocks or imbalances. Devaluation made their exports cheaper and more competitive on the global market, which in turn helped boost economic activity and reduce unemployment.

Question 2

_____ refers to the percentage of the assets in cash or another liquid form that banks are required to maintain.

Accepted Answer

The percentage of the assets that banks are required to maintain in cash or liquid form is known as bank reserve. It is a type of mandatory reserve that is set by the central bank to ensure financial stability and prevent bank runs. Banks must maintain a certain level of reserves, typically based on a percentage of their deposits, as a cushion against unexpected withdrawals or economic shocks. This reserve requirement helps to ensure that banks have enough liquidity to meet their obligations and avoid default.

Question 3

Global firms monitor the policies and discussions of the G20 and other economic organizations so that they can identify new opportunities and use their leverage to protect their markets and businesses.

Accepted Answer

Global firms often monitor the policies and discussions of economic organizations, such as the G20, to gain insights into new opportunities and to protect their markets and businesses using their leverage.

Question 4

The Nixon Shock refers to a series of economic decisions made in 1971 that led to the:

Accepted Answer

The Nixon Shock led to the demise of the Bretton Woods system, which had been in place since the end of World War II and had established the U.S. dollar as the world's reserve currency. Nixon's decision to remove the U.S. dollar from the gold standard and devalue the currency destabilized global financial markets and ultimately led to the collapse of the Bretton Woods system.

Question 5

The major significance of the _____ was that it was the first formal institution that governed international monetary systems.

Accepted Answer

The Bretton Woods Agreement, signed in 1944, established the International Monetary Fund (IMF) and the World Bank, creating the first formal institution to govern international monetary systems. The agreement also created a fixed exchange rate system with the US dollar as the global reserve currency. The Nixon Shock in 1971 marked the end of the Bretton Woods system. The Smithsonian Agreement in 1971 was a temporary adjustment of exchange rates within the Bretton Woods system. The World Trade Organization (WTO) and the General Agreement on Tariffs and Trade (GATT) regulate global trade, but they do not specifically govern international monetary systems.

Question 6

If a country's currency increases in value,exports will become less expensive,thus making it difficult for other companies to compete effectively against that country's firms.

Accepted Answer

When a country's currency increases in value, its exports become more expensive for foreign buyers, making it harder for that country's firms to compete abroad due to higher prices.

Question 7

Gold standard refers to the:

Accepted Answer

Gold standard refers to the pre-World War I global monetary system that used gold as the basis of international economic exchange.

Question 8

The Bretton Woods Agreement,with regard to currency conversion,established that:

Accepted Answer

The Bretton Woods Agreement established that only governments could convert their U.S. dollar holdings into gold. This was intended to control inflation and stabilize international trade by tying currencies to the value of gold. Private businesses and individuals were not allowed to convert their dollars into gold under this agreement.

Question 9

The _____ Agreement was a new dollar-based monetary system,which gave countries the flexibility they needed to manage temporary economic setbacks.

Accepted Answer

The answer of The _____ Agreement was a new dollar-based...

Question 10

The local governments manage many of the projects that the World Bank Group funds in specific countries,but the actual work is typically done by a private sector firm.

Accepted Answer

The local governments usually manage the projects that the World Bank Group funds, but they hire private sector firms to carry out the work.

Question 11

When Bretton Woods was established,John Maynard Keynes,a highly influential British economic thinker,initially proposed creating an international currency called _____ as the main currency.

Accepted Answer

John Maynard Keynes proposed creating an international currency called Bancor as the main currency at the Bretton Woods conference.

Question 12

Triffin Paradox refers to:

Accepted Answer

Triffin Paradox refers to the situation where the more dollars foreign countries held, the less faith they had in the ability of the U.S. government to convert those dollars. This paradox arises due to the fact that the U.S. dollar serves as the world's reserve currency and is used for international transactions. As the demand for dollars increases, the U.S. needs to continually issue more dollars to meet this demand, which can lead to inflation and a loss of confidence in the currency.

Question 13

Trade deficit refers to the:

Accepted Answer

Trade deficit refers to the situation where a country imports more goods and services than it exports, resulting in a negative balance of trade. This is reflected in the value of imports being greater than the value of exports. Option A refers to national debt, option B refers to Gross Domestic Product (GDP), option C refers to the balance of payments, and option E refers to foreign direct investment.

Question 14

_____ refers to a main currency that many countries and institutions hold as part of their foreign exchange reserves.

Accepted Answer

Reserve currency refers to a main currency, such as the US dollar, that is widely accepted and held as part of foreign exchange reserves by many countries and institutions.

Question 15

The _____,which devalued the U.S.dollar to $38 per ounce of gold,increased the value of other countries' currencies to the dollar,and increased the band within which a currency was allowed to float from 1 percent to 2.25 percent.

Accepted Answer

The Smithsonian Agreement, signed in 1971, devalued the U.S. dollar to $38 per ounce of gold, increased the value of other countries' currencies to the dollar, and increased the band within which a currency was allowed to float from 1 percent to 2.25 percent.

Question 16

_____ refers to the price of one currency in terms of a second currency.

Accepted Answer

Exchange rate refers to the value of one currency compared to another. It reflects the price of one currency in terms of the other and determines the level of international trade and capital flows between countries.

Question 17

Which of the following is true of the gold standard as the international monetary system?

Accepted Answer

Under the gold standard, the volume of paper currency circulating could not exceed the gold reserves of the country. This meant that countries could not simply print more money to finance government spending or stimulate the economy, as they had to have enough gold reserves to back up their currency. This helped prevent inflation and encouraged countries to maintain a stable and balanced economy.

Question 18

Politically,the country whose currency is the reserve currency is perceived as the dominant economic power.

Accepted Answer

This is because the reserve currency serves as a medium of exchange and store of value for international transactions and central banks around the world hold significant reserves of the currency. Therefore, the country whose currency is the reserve currency is seen as having a strong and stable economy that is trusted by other countries.

Question 19

_____ refers to a situation when a currency's value increases or decreases based on demand and supply.

Accepted Answer

The answer of _____ refers to a situation when a...

Question 20

The World Bank is directed to make loans for projects but never to fund a trade deficit.

Accepted Answer

The World Bank is primarily focused on lending to support development projects and does not provide funding to address trade deficits. Its loans are intended to help member countries finance development projects such as energy systems, transportation infrastructure, and social services.

Quiz 6: International Monetary System