Question 1

Depreciation of a currency occurs when

Accepted Answer

Depreciation of a currency occurs when a floating exchange rate adjusts downward. This means that the value of the currency decreases in relation to other currencies on the foreign exchange market. It can be caused by a variety of factors such as changes in monetary policy, inflation, political instability, or a country's economic performance. Depreciation can potentially make exports cheaper and more competitive, but it can also lead to higher inflation and increased costs of imports.

Question 2

If the domestic currency is initially undervalued, that is below par, the central bank must intervene to sell the ________ currency by purchasing ________ assets.

Accepted Answer

The answer of If the domestic currency is initially undervalued,...

Question 3

In the Bretton Woods system, the anchor currency was the

Accepted Answer

The Bretton Woods system established the U.S. dollar as the anchor currency. Under the system, the value of other currencies was fixed to the value of the U.S. dollar, which was in turn fixed to the price of gold. This system was in place from 1944-1971.

Question 4

The Bretton Woods agreement created the ________, which was given the task of promoting the growth of world trade by setting rules for the maintenance of fixed exchange rates and by making loans to countries that were experiencing balance of payments difficulties.

Accepted Answer

The International Monetary Fund (IMF) was created through the Bretton Woods agreement and was given the task of promoting the growth of world trade by setting rules for the maintenance of fixed exchange rates and by making loans to countries that were experiencing balance of payments difficulties. The World Bank, Central Settlements Bank, and Bank of International Settlements were also created around the same time, but had different roles and responsibilities. The European Exchange Rate Mechanism (ERM) was created in the 1970s as a precursor to the European Monetary Union, and was not directly related to the Bretton Woods agreement.

Question 5

Under a fixed exchange rate regime, when the domestic currency is undervalued, the central bank must ________ the domestic currency to keep the exchange rate fixed; as a result, it ________ international reserves.

Accepted Answer

The answer of Under a fixed exchange rate regime, when...

Question 6

Revaluation of a currency's value occurs when

Accepted Answer

The answer of Revaluation of a currency's value occurs when
...

Question 7

Which of the following are true statements about the Bretton Woods system?

Accepted Answer

Statement A is true, as the Bretton Woods system was a fixed exchange rate regime where central banks intervened in the foreign exchange market to keep their currencies at a fixed rate. 
Statement B is also true, as the IMF was created to lend international reserves to countries facing balance of payments deficits, which could have threatened their ability to maintain their fixed exchange rates. 
Statement C is not true, as the US dollar was the primary reserve currency during the Bretton Woods system.

Question 8

The Bretton Woods system was one in which central banks

Accepted Answer

In the Bretton Woods system, central banks bought and sold their own currencies to keep their exchange rates fixed. This was done to maintain stability in international trade and finance, with the US dollar serving as the anchor currency. The other options are not accurate descriptions of the Bretton Woods system.

Question 9

If a country's central bank eventually runs out of international reserves, it cannot keep its currency from ________ and a ________ must occur in which the par exchange value is reset at a ________ level.

Accepted Answer

If a country's central bank runs out of international reserves, it cannot keep its currency from depreciating, and a devaluation must occur in which the par exchange value is reset at a lower level.

Question 10

Under a managed float exchange rate regime, policymakers frequently do not want to see their currencies depreciate because it makes ________ goods more expensive for ________ consumers and contributes to inflation.

Accepted Answer

Under a managed float exchange rate regime, when a currency depreciates, foreign goods become more expensive for domestic consumers, which can contribute to inflation by increasing the cost of imported goods and services.

Question 11

Under a fixed exchange rate regime, if the domestic currency is initially ________, that is ________ par, the central bank must intervene to sell the domestic currency by purchasing foreign assets.

Accepted Answer

Under a fixed exchange rate regime, if the domestic currency is undervalued (below par), the central bank must intervene to sell the domestic currency by purchasing foreign assets. This is because an undervalued currency will make exports cheaper and imports more expensive, increasing demand for domestic goods and reducing imports. The increase in demand for domestic goods leads to an increase in domestic output, increasing employment and inflation in the domestic economy. To maintain the fixed exchange rate, the central bank must intervene to sell the domestic currency and buy foreign assets, thereby increasing demand for the domestic currency and raising its value to its par level.

Question 12

Which of the following are true statements about the Bretton Woods system?

Accepted Answer

Option A is incorrect because the Bretton Woods system was actually a fixed exchange rate regime, in which exchange rates were fixed to the U.S. dollar. Option C is also incorrect because the Bretton Woods agreement lasted until 1971. Therefore, only option B is true, which states that the U.S. dollar was called a reserve currency because it was used to denominate the securities central banks held as international reserves.

Question 13

Leading up to the foreign exchange crisis of September 1992, the Bank of England wanted to pursue a(n)________ monetary policy and the German Bundesbank wanted to pursue a(n)________ monetary policy.

Accepted Answer

Leading up to the foreign exchange crisis of September 1992, the Bank of England wanted to pursue an expansionary monetary policy to stimulate the UK economy, while the German Bundesbank wanted to pursue a contractionary monetary policy to combat inflation, especially after the reunification of Germany. This difference in policy approaches contributed to the tensions within the European Exchange Rate Mechanism (ERM).

Question 14

Under a fixed exchange rate regime, if the domestic currency is initially ________, that is ________ par, the central bank must intervene to buy the domestic currency by selling foreign assets.

Accepted Answer

Under a fixed exchange rate regime, if the domestic currency is initially overvalued, it means it is valued higher than it should be, or above par. To correct this, the central bank must intervene by buying the domestic currency and selling its foreign assets to increase the demand for the domestic currency, thereby adjusting its value.

Question 15

Under a fixed exchange rate regime, when the domestic currency is overvalued, the central bank must ________ the domestic currency to keep the exchange rate fixed; as a result, it ________ international reserves.

Accepted Answer

The answer of Under a fixed exchange rate regime, when...

Question 16

Policymakers may not want to see their country's currency appreciate because

Accepted Answer

An appreciation of a country's currency makes its exports more expensive and imports cheaper. This can hurt domestic businesses because their goods become less competitive both abroad and at home, as foreign goods become more affordable to domestic consumers.

Question 17

What kind of exchange rate system did the Bretton Woods agreement establish?

Accepted Answer

The Bretton Woods agreement established a fixed exchange rate system where currencies were pegged to the US dollar and the US dollar was backed by gold. The exchange rates of other currencies were allowed to fluctuate within a narrow band relative to the dollar, with countries intervening to maintain their currency within the agreed-upon range.

Question 18

If a central bank does not want to see its currency rise in value, it may pursue ________ monetary policy to ________ the domestic interest rate, thereby weakening its currency.

Accepted Answer

Pursuing expansionary monetary policy involves lowering the domestic interest rate, which reduces the relative return on assets denominated in that currency and makes it less attractive to foreign investors, leading to a weakening of the currency.

Question 19

If a central bank does not want to see its currency fall in value, it may pursue ________ monetary policy to ________ the domestic interest rate, thereby strengthening its currency.

Accepted Answer

If a central bank wants to strengthen its currency, it can pursue a contractionary monetary policy, which involves raising interest rates. This makes the currency more attractive to foreign investors, increasing demand for it and ultimately leading to its appreciation. An expansionary monetary policy, which involves lowering interest rates, is typically used to stimulate economic growth and can lead to a weaker currency.

Question 20

The Bretton Woods agreement set up the ________, which currently provides long-term loans to assist developing countries to build dams, roads, and other physical capital that contributes to economic development.

Accepted Answer

The Bretton Woods agreement set up the World Bank, which currently provides long-term loans to assist developing countries to build dams, roads, and other physical capital that contributes to economic development. The International Monetary Fund is also a product of the Bretton Woods agreement, but its primary focus is on promoting international monetary cooperation and exchange rate stability, rather than funding long-term development projects. The Central Settlements Bank and Bank of International Settlements are not related to the Bretton Woods agreement or international development finance. The European Exchange Rate Mechanism is a system designed to stabilize exchange rates between European Union member countries, and is also not related to the World Bank or Bretton Woods.

Quiz 16: The International Financial System

Depreciation of a currency occurs when

If the domestic currency is initially undervalued, that is below par, the central bank must intervene to sell the currency by purchasing assets.

In the Bretton Woods system, the anchor currency was the

The Bretton Woods agreement created the ________, which was given the task of promoting the growth of world trade by setting rules for the maintenance of fixed exchange rates and by making loans to countries that were experiencing balance of payments difficulties.

Under a fixed exchange rate regime, when the domestic currency is undervalued, the central bank must the domestic currency to keep the exchange rate fixed; as a result, it international reserves.

Revaluation of a currency's value occurs when

Which of the following are true statements about the Bretton Woods system?

The Bretton Woods system was one in which central banks

If a country's central bank eventually runs out of international reserves, it cannot keep its currency from and a must occur in which the par exchange value is reset at a level.

Under a managed float exchange rate regime, policymakers frequently do not want to see their currencies depreciate because it makes goods more expensive for consumers and contributes to inflation.

Under a fixed exchange rate regime, if the domestic currency is initially , that is par, the central bank must intervene to sell the domestic currency by purchasing foreign assets.

Which of the following are true statements about the Bretton Woods system?

Leading up to the foreign exchange crisis of September 1992, the Bank of England wanted to pursue a(n) monetary policy and the German Bundesbank wanted to pursue a(n) monetary policy.

Under a fixed exchange rate regime, if the domestic currency is initially , that is par, the central bank must intervene to buy the domestic currency by selling foreign assets.

Under a fixed exchange rate regime, when the domestic currency is overvalued, the central bank must the domestic currency to keep the exchange rate fixed; as a result, it international reserves.

Policymakers may not want to see their country's currency appreciate because

What kind of exchange rate system did the Bretton Woods agreement establish?

If a central bank does not want to see its currency rise in value, it may pursue monetary policy to the domestic interest rate, thereby weakening its currency.

If a central bank does not want to see its currency fall in value, it may pursue monetary policy to the domestic interest rate, thereby strengthening its currency.

The Bretton Woods agreement set up the ________, which currently provides long-term loans to assist developing countries to build dams, roads, and other physical capital that contributes to economic development.

Quiz 16: The International Financial System

Depreciation of a currency occurs when

If the domestic currency is initially undervalued, that is below par, the central bank must intervene to sell the ________ currency by purchasing ________ assets.

In the Bretton Woods system, the anchor currency was the

The Bretton Woods agreement created the ________, which was given the task of promoting the growth of world trade by setting rules for the maintenance of fixed exchange rates and by making loans to countries that were experiencing balance of payments difficulties.

Under a fixed exchange rate regime, when the domestic currency is undervalued, the central bank must ________ the domestic currency to keep the exchange rate fixed; as a result, it ________ international reserves.

Revaluation of a currency's value occurs when

Which of the following are true statements about the Bretton Woods system?

The Bretton Woods system was one in which central banks

If a country's central bank eventually runs out of international reserves, it cannot keep its currency from ________ and a ________ must occur in which the par exchange value is reset at a ________ level.

Under a managed float exchange rate regime, policymakers frequently do not want to see their currencies depreciate because it makes ________ goods more expensive for ________ consumers and contributes to inflation.

Under a fixed exchange rate regime, if the domestic currency is initially ________, that is ________ par, the central bank must intervene to sell the domestic currency by purchasing foreign assets.

Which of the following are true statements about the Bretton Woods system?

Leading up to the foreign exchange crisis of September 1992, the Bank of England wanted to pursue a(n) ________ monetary policy and the German Bundesbank wanted to pursue a(n) ________ monetary policy.

Under a fixed exchange rate regime, if the domestic currency is initially ________, that is ________ par, the central bank must intervene to buy the domestic currency by selling foreign assets.

Under a fixed exchange rate regime, when the domestic currency is overvalued, the central bank must ________ the domestic currency to keep the exchange rate fixed; as a result, it ________ international reserves.

Policymakers may not want to see their country's currency appreciate because

What kind of exchange rate system did the Bretton Woods agreement establish?

If a central bank does not want to see its currency rise in value, it may pursue ________ monetary policy to ________ the domestic interest rate, thereby weakening its currency.

If a central bank does not want to see its currency fall in value, it may pursue ________ monetary policy to ________ the domestic interest rate, thereby strengthening its currency.

The Bretton Woods agreement set up the ________, which currently provides long-term loans to assist developing countries to build dams, roads, and other physical capital that contributes to economic development.

If the domestic currency is initially undervalued, that is below par, the central bank must intervene to sell the currency by purchasing assets.

Under a fixed exchange rate regime, when the domestic currency is undervalued, the central bank must the domestic currency to keep the exchange rate fixed; as a result, it international reserves.

If a country's central bank eventually runs out of international reserves, it cannot keep its currency from and a must occur in which the par exchange value is reset at a level.

Under a managed float exchange rate regime, policymakers frequently do not want to see their currencies depreciate because it makes goods more expensive for consumers and contributes to inflation.

Under a fixed exchange rate regime, if the domestic currency is initially , that is par, the central bank must intervene to sell the domestic currency by purchasing foreign assets.

Leading up to the foreign exchange crisis of September 1992, the Bank of England wanted to pursue a(n) monetary policy and the German Bundesbank wanted to pursue a(n) monetary policy.

Under a fixed exchange rate regime, if the domestic currency is initially , that is par, the central bank must intervene to buy the domestic currency by selling foreign assets.

Under a fixed exchange rate regime, when the domestic currency is overvalued, the central bank must the domestic currency to keep the exchange rate fixed; as a result, it international reserves.

If a central bank does not want to see its currency rise in value, it may pursue monetary policy to the domestic interest rate, thereby weakening its currency.

If a central bank does not want to see its currency fall in value, it may pursue monetary policy to the domestic interest rate, thereby strengthening its currency.