Question 1

An increase in the demand for rubles causes the ruble to appreciate.

Accepted Answer

An increase in demand for a currency typically leads to an appreciation of that currency, as more people are willing to buy and hold it, increasing its value in the foreign exchange market.

Question 2

World Bank funds are largely acquired through interest earned on the deposits of member nations.

Accepted Answer

The given statement is not related to the foreign exchange market for British pounds traded for U.S. dollars. It is a separate topic about how the World Bank acquires funds.

Question 3

Fixed exchange rates allow countries to formulate their economic policies independently of other nations.

Accepted Answer

Fixed exchange rates limit a country's ability to set independent economic policies, as they must maintain their currency at a certain level relative to other countries' currencies. This can limit a country's ability to control inflation, interest rates, and other economic factors.

Question 4

The exchange rate affects the trade in goods and services between California and NewYork.

Accepted Answer

The foreign exchange market for British pounds traded for U.S. dollars does not directly affect the trade in goods and services between California and New York as they are both part of the same country and use the same currency (U.S. dollar). However, an increase in the exchange rate between British pounds and U.S. dollars could indirectly affect the trade relationship between California and New York as it could impact the overall strength of the U.S. dollar and the competitiveness of U.S. exports.

Question 5

If the official gold value of the Australian dollar changes from 470 Australian dollars per ounce to 493 Australian dollars per ounce, we can say that the Australian dollar has appreciated in value.

Accepted Answer

The increase in the amount of Australian dollars needed to buy an ounce of gold indicates that the Australian dollar has depreciated in value, as it now takes more dollars to purchase the same amount of gold.

Question 6

The euro floats against other currencies, but the member nations of the euro have no separate national money.For this reason, Spain, that uses the euro as its currency is listed under the managed float arrangement.

Accepted Answer

Spain does not have a separate national currency, it uses the euro as its currency. Therefore, Spain is actually part of the euro zone and their currency is part of the euro's floating exchange rate system, not a managed float arrangement.

Question 7

Under a floating exchange-rate system, a country needs to pay more attention to the economic policies of the rest of the world.

Accepted Answer

The answer of Under a floating exchange-rate system, a country...

Question 8

Because of their greediness, speculators are considered bad for exchange-rate markets.

Accepted Answer

Speculators are often accused of creating excessive fluctuations in exchange rates due to their tendency to take positions based on short-term profit motives, rather than fundamental factors driving the currency's value. This can create volatility and instability in the market, negatively affecting other players such as businesses and investors. Therefore, they are generally viewed as destabilizing and harmful to the overall functioning of exchange-rate markets.

Question 9

Demand for U.S.dollars by speculators is likely to increase if the dollar is expected to depreciate in the near future.

Accepted Answer

Demand for U.S. dollars would decrease if speculators expect it to depreciate in the near future. They would sell their dollars and invest in other currencies that are expected to appreciate.

Question 10

Fixed exchange rates serve as a constraint on inflationary government policies.

Accepted Answer

Fixed exchange rates limit a government's ability to pursue inflationary policies, as increasing the money supply could lead to currency depreciation and, in turn, currency devaluation or a balance of payments crisis. This provides a constraint on the government's ability to increase inflation.

Question 11

Under both the gold standard and the gold exchange standard countries bought and sold U.S.dollars to maintain a fixed exchange rate with the dollar.

Accepted Answer

Under the gold standard, countries maintained a fixed exchange rate through the direct exchange of gold, not U.S. dollars. The gold exchange standard involved holding U.S. dollars as reserves to maintain a fixed exchange rate, but this was distinct from the direct exchange of gold under the original gold standard.

Question 12

The exchange-rate arrangement that emerged from the Bretton Woods conference is often called a managed float standard.

Accepted Answer

The figure does not provide any information about the exchange-rate arrangement that emerged from the Bretton Woods conference, so it is not possible to determine whether the statement is true or false based on the given information.

Question 13

When an exchange rate is established as a fixed peg, active intervention may be required to maintain the target-pegged rate.

Accepted Answer

Active intervention, such as buying or selling currency, may be necessary to maintain a fixed pegged exchange rate.

Question 14

The gold standard ended in the 1970s because the gold supplies failed to keep pace with the increase in money supplies required for industrialization and rapid economic growth witnessed in this era.

Accepted Answer

The question is not related to the given figure depicting the foreign exchange market for British pounds traded for U.S. dollars. The question is about the gold standard, which is not mentioned or depicted in the figure. However, the statement in the question is false because the gold standard ended primarily due to the difficulties countries faced in maintaining fixed exchange rates and the need for more flexibility in monetary policy. The increase in money supplies for industrialization and economic growth was not the primary reason for the end of the gold standard.

Question 15

The World Bank was created to help finance economic development in poor countries.

Accepted Answer

The World Bank is a global financial institution that was created in 1944 to provide loans and grants to developing countries for the purpose of promoting economic development and reducing poverty.

Question 16

The IMF comprises of 50 member countries including all developed countries, and a few countries of Asia and Latin America.

Accepted Answer

The IMF comprises of 190 member countries including both developed and developing countries from around the world.

Question 17

No currency ever appreciated or depreciated under the Bretton Woods system as it was based on a system of fixed exchange rates.

Accepted Answer

Currencies under the Bretton Woods system could appreciate or depreciate in relation to the fixed exchange rate, but central banks were expected to intervene to maintain the fixed rate. However, this could lead to imbalances and eventually contributed to the collapse of the Bretton Woods system in 1971.

Question 18

A downward-sloping demand curve for Korean won in terms of Canadian dollars indicates that the higher the dollar price of Korean won, the more won will be demanded.

Accepted Answer

A downward-sloping demand curve for Korean won indicates that the higher the dollar price of Korean won, the less won will be demanded. This is because as the price of Korean won increases, Canadian buyers will find it more expensive to purchase Korean goods and services, leading to a decrease in demand for Korean won.

Question 19

Appreciation of the dollar means that now it takes more dollars to buy one unit of foreign currency.

Accepted Answer

Appreciation of the dollar means that the dollar has become stronger relative to other currencies, therefore it takes fewer dollars to buy one unit of foreign currency.

Question 20

A fixed exchange rate can be an equilibrium rate even if there is a permanent shift in the foreign exchange market supply and demand curves.

Accepted Answer

A permanent shift in the foreign exchange market supply and demand curves would result in a new equilibrium exchange rate. A fixed exchange rate would no longer be an equilibrium rate in this scenario.

Quiz 42: Exchange Rates and Financial Links Between Countries