Question 1

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 2

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

Accepted Answer

An increase in the demand for a currency generally causes its value to appreciate or strengthen. Therefore, an increase in demand for rubles would cause the ruble to appreciate.

Question 3

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

Accepted Answer

Fixed exchange rates can limit a country's ability to formulate its economic policies independently as it must maintain its currency at the fixed rate relative to the other countries in the system. This can create pressure to align monetary and fiscal policies with the other countries in the system to maintain the fixed rate.

Question 4

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 it now takes fewer dollars to buy one unit of foreign currency.

Question 5

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

Accepted Answer

Speculators would not want to demand a currency that they expect to depreciate in the near future, as it would result in losses for them. They would instead demand a currency that they expect to appreciate.

Question 6

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 all developed countries, and many countries of Asia and Latin America.

Question 7

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

Accepted Answer

Fixed exchange rates limit a government's ability to manipulate its currency and engage in inflationary policies that could harm the exchange rate. The government must maintain the fixed rate, which often requires implementing monetary and fiscal policies to control inflation.

Question 8

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 9

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.

Question 10

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 may involve buying and selling foreign currency reserves to maintain the target-pegged rate.

Question 11

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

Accepted Answer

Currency values under the Bretton Woods system were fixed, but they could still appreciate or depreciate within the set range of the system's exchange rates. The US dollar, as the anchor currency, faced significant appreciation pressures, leading to the breakdown of the system in the 1970s.

Question 12

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 indicates that as the price of the good or currency increases, the quantity demanded decreases. Therefore, a downward-sloping demand curve for Korean won in terms of Canadian dollars indicates that as the dollar price of Korean won increases, the quantity of won demanded would decrease.

Question 13

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 14

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 15

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

Accepted Answer

Speculators often act solely in their own self-interest, buying or selling large amounts of currency in order to make a profit. This behavior can lead to an increase in market volatility and can disrupt the normal functioning of exchange-rate markets. Therefore, speculators are often considered bad for exchange-rate markets due to their greediness.

Question 16

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

Accepted Answer

This is true. The World Bank was established in 1944 with the aim of providing financial assistance to developing countries for infrastructure and economic development projects.

Question 17

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 18

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 is a member nation of the eurozone and uses the euro as its currency. As such, it is subject to the same floating exchange rate system as the other member nations and does not have a separate national currency. Therefore, it is not listed under a managed float arrangement.

Question 19

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

Accepted Answer

The World Bank funds are largely acquired through borrowing from international capital markets, rather than interest earned on member nations' deposits. The World Bank does receive some funding from member nations, but this is a relatively small portion of its total funding.

Question 20

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.

Quiz 39: Exchange Rates and Financial Links Between Countries