BUS5 187: Smartbook Chp 11
The biggest advantage of the the gold standard was that it provided a powerful way to achieve ________ equilibrium for all countries
balance-of-trade
A _______ crisis occurs when businesses and people lose confidence in their financial institutions and withdraw their deposits.
banking
A ________crisis refers to a loss of confidence in the banking system that leads to a run on banks, as individuals and companies withdraw their deposits. This is what happened in Iceland in 2008
banking
Under the IBRD scheme of lending money by the World Bank, money is raised through the sale of
bonds
Since the 1970s, developed countries like Great Britain and the US have tended to finance their deficits by
borrowing private money
Which statement regarding the gold standard is accurate?
by the start of WWII, the gold standard was no longer
The US dollar and the Japanese yen are free to float against each other. This means that their exchange rates ________ fluctuate
constantly
Foreign exchange rates have been more volatile since 1973 due to the many _________that have occurred in this period
crises
A(n) ________ board holds reserves of foreign currency equal to the fixed exchange, and commits itself to converting its domestic currency on demand to another currency at a fixed exchange rate
currency
When a speculative attack on the exchange value of a currency results in a depreciation of that currency, it is called a(n) ______crisis
currency
The OPEC oil crisis in 1971 increased the US inflation rate, which led to negative effects on the trade position, and this led to a(n) _________ in the value of the dollar.
decrease
Between 1985 and 1988, the U.S. dollar _______ in value relative to major trading currencies.
decreased
If a country is running a trade deficit, in a floating exchange rate system the exchange rate can ________, making its exports cheaper and imports more expensive, which should correct the trade deficit
depreciate
During a currency crisis, the value of a country's currency
depreciates
When Great Britain returned to the gold standard in 1925, it placed the pound at the prewar gold parity level and, as a result, placed the country in a period of
depression
When a country does not adopt a formal pegged rate, but tries to keep its currency within some range of a reference currency, this is called a(n) _______system
dirty float
A _______ system is when a government intervenes in the currency market to limit volatility of its currency exchange rate
dirty-float
A fixed exchange rate system is supported by monetary _______ while the floating exchange rate system supports the monetary _________ argument.
discipline ; autonomy
Most pegged exchange rates are tied to the
dollar
In 2000, Ecuador abandoned its own currency as the result of the hyperinflation taking place in that country. The country turned to using US currency instead. This is an example of
dollarization
The purpose of the Bretton Woods meeting was to facilitate
economic growth following the war
When the current account of a country's balance of payments is in balance it is called the balance-of-trade
equilibrium
The IMF was initially established to allow members to borrow short term to adjust their balance-of-payments position and maintain their
exchange rate
In recent years, the IMF's activities have
expanded
IMF data suggests that developing countries are most likely to
experience currency and banking crises
True or False: Under the Jamaica Agreement, gold was once again reintroduced as a reserve asset
false
True or false: Businesses have no ability to influence government policy toward the international monetary system
false
True or false: Most economists agree that a fixed exchange rate system is preferable to a floating exchange rate system
false
True or false: The IMF has the ability to force governments to implement its suggestions
false
True or false: The IMF no longer has the financial leverage to act aggressively in times of global financial crisis
false
True or false: The fixed exchange rate system is still in use in the European Union
false
A ________ exchange rate is when the values of a set of currencies are fixed against each other at an exchange rate to which both parties agree
fixed
A _______exchange rate discourages competitive devaluations and imposes monetary discipline
fixed
A currency board would look to _______ exchange rates when converting currency
fixed
The European Monetary System relied on a _______ exchange rate system prior to the introduction of the euro
fixed
When the values of a set of currencies are set against each other at some mutually-agreed on exchange rate,________ a exchange rate exists
fixed
The most common exchange rate regime used today is the ___________ arrangement, used by 43% of the nations
fixed peg
A _______ system reduces speculation because investors cannot profit from changes in the exchange rate
fixed rate
IMF lending facilities and adjustable parities added ______ to the IMF Articles of Agreement
flexibility
A ________ exchange rate is advocated as having the ability to help a country out of an economic crisis.
floating
An argument for a(n) ______ exchange rate system is that a country regains control of its money supply
floating
It has been argued that a _______ exchange rate system can help a country deal with economic crises
floating
Monetary policy autonomy and automatic trade balance adjustments are elements that tend to support _____ exchange rates
floating
The Jamaica agreement was a way to recognize current trends and adjust for _______ exchange rates
floating
When the foreign exchange market determines the relative value of a currency in a country, that country is using a(n) ______exchange rate regime
floating
When a country cannot service its obligations on debt in foreign countries, it is experiencing a __________ crisis
foreign debt
In the 1990s, one of the reasons for the appreciation of the U.S dollar was
foreign investment in US, stocks and bonds, which drove up the value of the dollar on the foreign exchange
One way for businesses to control the uncertainty of the future value of currencies is to utilize the _______exchange market.
forward
The ______ market provides coverage for exchange rate changes that are a few months ahead
forward
Following the Industrial Revolution, to allow for the use of paper currencies to finance trade, governments agreed to convert the paper currency into ________ on demand at a fixed rate.
gold
In an effort to get all countries to simultaneously revalue against the dollar, President Nixon announced in 1971 that the dollar was no longer convertible into
gold
An advantage of the _______ was that it was thought to have a direct correlation with a balance-of-trade equilibrium by all countries
gold standard
A dirty float results when _____ intervention is used to maintain the value of a currency
government
A country is in a balance-of-trade equilibrium when
he income residents earn from exports equals the money its residents pay to other countries for imports
What would be a typical situation that might cause a country to consider dollarization?
high inflation rates
The start of the demise of the fixed exchange rate system was notable in 1971 when the US was ________more than ________.
importing ; exporting
When responding to the global financial crisis in April 2009, major IMF members agreed to ______ the IMF's resources.
increase
The use of currency management instruments such as swaps and the forward market have _____ since 1973.
increased
As the text explains, if Great Britain (under a fixed exchange rate regime) rapidly increased its money supply by printing pounds, then this increase in the money supply would lead to price
inflation
The Bretton Woods system could only work as long as the US
inflation rate remained low
Which institution was established at Bretton Woods to maintain order in the international monetary system?
international monetary fund
Which statement is accurate regarding corporate influence on the international monetary system?
it is in the best interests of international businesses to promote an international monetary system that minimizes volatile exchange rate movements
The ________ Agreement revised the IMF's Articles of Agreement to allow floating exchange rates.
jamaica
The value of the US dollar declined during the OPEC oil crisis in 1971 when the price of oil
quadrupled
Smaller nations prefer pegged rates because these exchange rates
provide monetary discipline and lead to low inflation
In 1997, The IMF loaned ______ to South Korea to help the country recover from its 1997 financial crisis
$55 billion
Select all that apply: What are three reasons why the dollar became less attractive to foreign investments by 2002?
1. US slowdown in economic activity 2. US government officials "talking down" the dollar 3. US budget deficits increased
Select all that apply: What are the three main elements supporting a floating exchange rate system?
1. economic recovery following a crisis 2. monetary policy autonomy 3. automatic trade balance adjustments
Select all that apply: Some smaller states in Africa and the Caribbean have no domestic currency. These states rely on which two foreign currencies?
1. euro 2. US dollar
Select all that apply: What three countries experienced a foreign debt crisis in 2010?
1. greece 2. portgual 3. ireland
Select all that apply: Which two features of the IMF Articles of Agreement fostered flexibility in the Bretton Woods agreement?
1. lending facilities 2. adjustable parties
Select all that apply: The unpredictability of exchange rate movements in the post-Bretton Woods era has lead to which two situations?
1. made international business planning difficult 2. added risk to exporting and importing
Select all that apply: Setting a fixed exchange rate imposes discipline on countries in two ways. What are those two ways?
1. prevents competitive devaluations and brings stability to global trade 2. imposes monetary discipline on countries
Select all that apply: What two variables were necessary for the Bretton Woods system to work?
1. us inflation needed to remain low 2. us could not run a balance-of-payment deficit
The gold standard was embraced by most of the world's major trading countries in the late
1800s
If one ounce of gold in dollars cost $25, and one ounce of gold in pounds cost $10, then the exchange rate for converting pounds into dollars is
2.50
What was the purpose of the Marshall Plan?
The United States lent money directly to European nations to help them rebuild after the war
A criticism of the IMF is that it lacks _______ because there is no body that oversees its actions and decisions
accountability
In the late 1990s, the dollar ________ against most major currencies
appreciated
There are opposing views about the use of currency to adjust trade balances. The group that argues that the external value of currency has no affect on the trade balance believes that the balance between ________ in a country determines the trade deficit.
savings and investment
Advocates of a fixed exchange rate contend that a fixed system will limit the destabilizing effects of
speculation
While it is hard to determine which side is right in the debate over fixed exchange rates and floating exchange rates, it is evident that the fixed exchange rate regime of the Bretton Woods era probably will not work since ______ broke the system originally
speculation
Governments tying currencies to gold and guaranteeing convertibility to gold is known as the gold
standard
The Louvre Accord resulted in an agreement that
supported the stability of exchange rates around their current level
Which type of company is best-suited for contracting out manufacturing in an effort to reduce economic exposure as the result of exchange rate movements?
textile firm
What is the best description of the value of the US dollar against trading currencies from 1973 to now?
the dollar has had numerous rapid increases and subsequent downfalls
The United States raised the dollar price of gold by nearly $15 per ounce in 1934. What was the result?
the dollar was worth less
Why was the Louvre Accord assembled?
the governments of the group of five were concerned the dollar would continue to decline
IDA loans provided by the World Bank are only available to
the poorest countries
One of the criticisms of the IMF is that it lacks accountability. This means that
there is no one who watches over the IMF
True or false: The fixed exchange rate is considered a mechanism for controlling inflation and imposing economic discipline on countries
true
True or false: Those in favor of floating exchange rates argue that floating rates help adjust trade imbalances and can assist with economic recovery
true
True or false: Under the currency board in place in Hong Kong, the government is limited in its ability to print money
true
True or false: When countries began to devalue their currencies at will, confidence in the gold standard lessened
true
According to IMF studies, developing nations are _______ to experience currency and banking crises as compared to developed nations.
twice as likely
Proponents of a fixed exchange system argue that this type of system reduces
uncertainty
The fixed rate exchange system established at Bretton Woods eventually collapsed. This collapse is attributed to the role of the ________ in the system
us dollar
Under the currency board system used in Hong Kong, the country's currency must be fully backed by the _______ at the specified exchange rate
us dollar
Based on the present system, speculative buying and selling of currency tends to create ________ movements in exchange rates
volatile
Foreign exchange rates have been very ________ since 1973 due to the many crises that have occurred in this period, such as the OPEC oil crises and the Asian currency crisis
volatile
Which activity occurred under the gold standard?
Governments agreed to convert paper currency into gold on demand at a fixed rate to allow for the use of paper currencies to finance trade
As a result of the Bretton Woods system, if a country developed a permanent deficit in balance of trade that could not be corrected by domestic policy, who could step in to agree to currency devaluation?
IMF
The policy position of the ________ is that when this institution lends money to countries, it imposes a tight macroeconomic policy that is not always considered appropriate by critics
IMF
From 2001-2002 there was a slowdown in US economic activity which meant that the dollar became _________ attractive
less
Contracting out manufacturing in an effort to build strategic flexibility is best suited for _______ value-added manufacturing
low
The IMF lends money to nations experiencing financial crisis in return for
macroeconomic policy implementation
Another name for a dirty-float system is a(n) ________ system
managed-float
What was the initiative called in which the United States lent money directly to countries in Europe to rebuild after World War II?
marshall plan
A floating exchange rate system allows a country to regain control of its _______ policy
monetary
The international ______ system is responsible for governing exchange rates
monetary
What type of discipline is inherent in a fixed exchange rate system?
monetary
Reacting to the 2008-2009 global financial crisis, the IMF urged countries to adopt policies that encompassed fiscal stimulus and
monetary easing
The institutional arrangements that have reign over exchange rates are referred to as the international
monetary system
An example of a ______ is when banks lend too much money to over-extended companies, expecting bail-out help from their government
moral hazard
When people behave recklessly because they know they will be bailed out if things don't go as planned, it is an example of
moral hazard
In 1971, many countries did not want to simultaneously revalue compared to the dollar because it would make their products _______ compared to US products
more expensive
A major criticism of the IMF is that it imposes tight macroeconomic policy on any country it lends money to. This is referred to as a(n) ______ approach
one-size-fits-all
As part of its agreement with the IMF to borrow funds in 1997, South Korea agreed to
open its economy and banking system to foreign investors
The amount of currency needed to purchase one ounce of gold was called the gold
par value
A(n) ______exchange rate implies that the value of the currency is fixed relative to a reference currency.
pegged
Many smaller nations prefer ______ rates because these exchange rates assist in moderating inflationary pressures in these countries.
pegged
Starting in the 1950s, the _______ concentrated on lending money for public sector projects in third-world countries
world bank
What financial institution was tasked with assisting in rebuilding Europe after World War II, but ended up helping third-world countries with public sector projects?
world bank
