Question 1

If the IMF agreed that the country's balance of payments was in "fundamental disequilibrium," the system of adjustable parities allowed for the devaluation of a country's currency by more than 10 percent.

Accepted Answer

The system of adjustable parities allowed for the devaluation of a country's currency by more than 10 percent if the IMF agreed that a country's balance of payments was in "fundamental disequilibrium."

Question 2

A floating exchange rate is a system under which the exchange rate for converting one currency into another is continuously adjusted depending on the laws of supply and demand.

Accepted Answer

When the foreign exchange market determines the relative value of a currency,we say that the country is adhering to a floating exchange rate regime.A floating exchange rate is a system under which the exchange rate for converting one currency into another is continuously adjusted depending on the laws of supply and demand.

Question 3

The Jamaica meeting in 1976 revised the IMF's Articles of Agreement to reflect the new reality of floating exchange rates.

Accepted Answer

According to the Jamaica agreement,floating rates were declared acceptable.

Question 4

Under the Bretton Woods agreement,all countries were to fix the value of their currency in terms of gold but were not required to exchange their currencies for gold.

Accepted Answer

Under the Bretton Woods agreement,all countries were to fix the value of their currency in terms of gold but were not required to exchange their currencies for gold.

Question 5

A dirty float is called so because the central bank of a country will intervene in the foreign exchange market to try to maintain the value of its currency if it depreciates too rapidly against an important reference currency.

Accepted Answer

A dirty float (as opposed to a clean float)is called so because the central bank of a country will intervene in the foreign exchange market to try to maintain the value of its currency if it depreciates too rapidly against an important reference currency.

Question 6

Under the International Development Association (IDA)scheme,the World Bank raises money through bond sales in the international capital market.

Accepted Answer

Resources to fund IDA loans are raised through subscriptions from wealthy members such as the United States,Japan,and Germany.

Question 7

Advocates of fixed exchange rates argue that each country should be allowed to choose its own inflation rate.

Accepted Answer

While advocates of floating rates argue that each country should be allowed to choose its own inflation rate (the monetary autonomy argument),advocates of fixed rates argue that governments all too often give in to political pressures and expand the monetary supply far too rapidly,causing unacceptably high price inflation.

Question 8

Since the Bretton Woods system of floating exchange rates collapsed in 1973,the world has operated with a fixed exchange rate system.

Accepted Answer

The Bretton Woods system of fixed exchange rates collapsed in 1973.Since then,the world has operated with a mixed system in which some currencies are allowed to float freely,but many are either managed by government intervention or pegged to another currency.

Question 9

Since March 1973,exchange rates have become much more stable and predictable than they were between 1945 and 1973.

Accepted Answer

Since March 1973,exchange rates have become much more volatile and less predictable than they were between 1945 and 1973.

Question 10

In a fixed exchange rate scenario,monetary expansion can lead to inflation,which puts downward pressure on a fixed exchange rate.

Accepted Answer

Under a fixed system,monetary expansion can lead to inflation,which puts downward pressure on a fixed exchange rate (as predicted by the PPP theory).

Question 11

The dollar fell in value between 1980 and 1985 as the United States was running a large and growing trade deficit,importing substantially more than it exported.

Accepted Answer

The rise in the value of the dollar between 1980 and 1985 occurred when the United States was running a large and growing trade deficit,importing substantially more than it exported.

Question 12

The Bretton Woods system could work only as long as the U.S.inflation rate remained low and the United States did not run a balance-of-payments deficit.

Accepted Answer

The Bretton Woods system had an Achilles' heel: The system could not work if its key currency,the U.S.dollar,was under speculative attack.The Bretton Woods system could work only as long as the U.S.inflation rate remained low and the United States did not run a balance-of-payments deficit.

Question 13

During the Bretton Woods era,countries were not allowed to borrow any funds from the IMF without adhering to specific agreements.

Accepted Answer

Countries were to be allowed to borrow a limited amount from the IMF without adhering to any specific agreements.However,extensive drawings from IMF funds would require a country to agree to increasingly stringent IMF supervision of its macroeconomic policies.

Question 14

The gold standard worked well from the 1870s until the start of World War II in 1939,when it was abandoned.

Accepted Answer

The gold standard worked reasonably well from the 1870s until the start of World War I in 1914,when it was abandoned.

Question 15

The exchange rates for almost all currencies are determined by the free play of market forces.

Accepted Answer

The exchange rates of many currencies are not determined by the free play of market forces;other institutional arrangements are adopted.

Question 16

From mid-2008 through early 2009 the U.S.dollar staged a moderate rally against major currencies,as foreign investors were excited at the possibility of unusually high returns from low-risk U.S.assets.

Accepted Answer

From mid-2008 through early 2009 the dollar staged a moderate rally against major currencies,despite the fact that the American economy was suffering from a serious financial crisis.The reason seems to be that despite America's problems,things were even worse in many other countries,and foreign investors saw the dollar has a safe haven and put their money in low-risk U.S.assets,particularly low-yielding U.S.government bonds.

Question 17

Many of the world's most developed nations peg their currencies,primarily to the dollar or the euro.

Accepted Answer

Many of the world's developing nations peg their currencies,primarily to the dollar or the euro.

Question 18

A fixed exchange rate regime imposes monetary discipline on countries,thereby curtailing price inflation.

Accepted Answer

A fixed exchange rate regime imposes monetary discipline on countries,thereby curtailing price inflation.

Question 19

The Bretton Woods agreement legalized the use of devaluation as a tool of competitive trade policy.

Accepted Answer

An aspect of the Bretton Woods agreement was a commitment not to use devaluation as a weapon of competitive trade policy.

Question 20

The amount of a currency needed to purchase one ounce of gold was referred to as the gold monetary value.

Accepted Answer

The amount of a currency needed to purchase one ounce of gold was referred to as the gold par value.

Quiz 10: The International Monetary System

If the IMF agreed that the country's balance of payments was in "fundamental disequilibrium," the system of adjustable parities allowed for the devaluation of a country's currency by more than 10 percent.

A floating exchange rate is a system under which the exchange rate for converting one currency into another is continuously adjusted depending on the laws of supply and demand.

The Jamaica meeting in 1976 revised the IMF's Articles of Agreement to reflect the new reality of floating exchange rates.

Under the Bretton Woods agreement,all countries were to fix the value of their currency in terms of gold but were not required to exchange their currencies for gold.

A dirty float is called so because the central bank of a country will intervene in the foreign exchange market to try to maintain the value of its currency if it depreciates too rapidly against an important reference currency.

Under the International Development Association (IDA)scheme,the World Bank raises money through bond sales in the international capital market.

Advocates of fixed exchange rates argue that each country should be allowed to choose its own inflation rate.

Since the Bretton Woods system of floating exchange rates collapsed in 1973,the world has operated with a fixed exchange rate system.

Since March 1973,exchange rates have become much more stable and predictable than they were between 1945 and 1973.

In a fixed exchange rate scenario,monetary expansion can lead to inflation,which puts downward pressure on a fixed exchange rate.

The dollar fell in value between 1980 and 1985 as the United States was running a large and growing trade deficit,importing substantially more than it exported.

The Bretton Woods system could work only as long as the U.S.inflation rate remained low and the United States did not run a balance-of-payments deficit.

During the Bretton Woods era,countries were not allowed to borrow any funds from the IMF without adhering to specific agreements.

The gold standard worked well from the 1870s until the start of World War II in 1939,when it was abandoned.

The exchange rates for almost all currencies are determined by the free play of market forces.

From mid-2008 through early 2009 the U.S.dollar staged a moderate rally against major currencies,as foreign investors were excited at the possibility of unusually high returns from low-risk U.S.assets.

Many of the world's most developed nations peg their currencies,primarily to the dollar or the euro.

A fixed exchange rate regime imposes monetary discipline on countries,thereby curtailing price inflation.

The Bretton Woods agreement legalized the use of devaluation as a tool of competitive trade policy.

The amount of a currency needed to purchase one ounce of gold was referred to as the gold monetary value.