Question 1

The Bretton Woods system was one in which central banks

Accepted Answer

Under the Bretton Woods system, central banks bought and sold their own currencies to maintain fixed exchange rates, with the U.S. dollar serving as the key currency. This system was in effect from 1944 until 1971, when the U.S. suspended the convertibility of dollars into gold, effectively ending the Bretton Woods system.

Question 2

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 World Bank was set up under the Bretton Woods agreement to provide long-term loans to developing countries for building physical infrastructure. The other options mentioned in the question have different roles and functions in the global financial system.

Question 3

Depreciation of a currency occurs when

Accepted Answer

Depreciation of a currency occurs when the value of a currency decreases in relation to other currencies in a floating exchange rate system. This can happen due to various reasons such as an increase in supply or a decrease in demand for the currency in the foreign exchange market. It is not related to fixed exchange rate adjustments.

Question 4

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 5

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 6

Revaluation of a currency's value occurs when

Accepted Answer

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

Question 7

In the Bretton Woods system, the anchor currency was the

Accepted Answer

The Bretton Woods system was established in 1944 and lasted until 1971. It was based on the U.S. dollar being the world's reserve currency, meaning that other countries would hold dollars as a reserve to conduct international trade and settle balances of payments. The U.S. dollar was therefore the anchor currency in the Bretton Woods system.

Question 8

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 9

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

Accepted Answer

The statement that the U.S. dollar was called a reserve currency because it was used to denominate the securities central banks held as international reserves is true. The other statements are false. The Bretton Woods system was a fixed exchange rate regime, not a flexible one, and it broke down in 1971, not 1945.

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

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 12

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 13

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 world trade by maintaining fixed exchange rates and making loans to countries in need. The World Bank was also created at the same conference but had a slightly different mandate focused on international development and poverty reduction. The other options mentioned (Central Settlements Bank, Bank of International Settlements, European Exchange Rate Mechanism) were not created through the Bretton Woods agreement.

Question 14

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 dollar was pegged to gold. This system lasted until the early 1970s, when the US abandoned the gold standard and moved towards a floating exchange rate system.

Question 15

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 will pursue a contractionary monetary policy, which involves raising the domestic interest rate. This makes holding the currency more attractive, increasing demand for it and therefore its value.

Question 16

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 17

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 or below par, the central bank must intervene to sell the domestic currency by purchasing foreign assets. This is because an undervalued currency can lead to speculative buying, driving up demand and potentially causing inflation. By selling the domestic currency and buying foreign assets, the central bank can decrease the supply of the domestic currency, increasing its value and stabilizing the exchange rate.

Question 18

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

When a country's central bank runs out of international reserves, it can no longer support the current value of its currency, resulting in a depreciating currency. In order to restore competitiveness and stability, a devaluation must occur, wherein the exchange value is reset at a lower level. Therefore, the best option is C.

Question 19

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

An expansionary monetary policy involves lowering the domestic interest rate, which would weaken the currency by making it less attractive to foreign investors seeking higher yields. A contractionary monetary policy would involve raising the interest rate, which would make the currency more attractive to investors, strengthening its value. Therefore, the correct choice is C - pursuing an expansionary monetary policy to lower the domestic interest rate and weaken the currency.

Question 20

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...

Quiz 16: The International Financial System

The Bretton Woods system was one in which central banks

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.

Depreciation of a currency occurs when

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.

Revaluation of a currency's value occurs when

In the Bretton Woods system, the anchor currency was the

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.

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

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.

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

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

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.

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

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.

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, if the domestic currency is initially , that is par, the central bank must intervene to sell the domestic currency by purchasing foreign assets.

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.

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.

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.

Quiz 16: The International Financial System

The Bretton Woods system was one in which central banks

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.

Depreciation of a currency occurs when

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.

Revaluation of a currency's value occurs when

In the Bretton Woods system, the anchor currency was the

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.

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

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.

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

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

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.

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

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.

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, if the domestic currency is initially ________, that is ________ par, the central bank must intervene to sell the domestic currency by purchasing foreign assets.

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.

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.

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.

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, 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.

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.

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

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.

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, if the domestic currency is initially , that is par, the central bank must intervene to sell the domestic currency by purchasing foreign assets.

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.

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.

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.