Chapter 13
) Most of the major currencies have had a floating exchange rate system since A) 1973. B) 1944. C) 1956. D) 1971.
a
) The SDR (Special Drawing Rights) is issued by the A) IMF. B) Federal Reserve Bank. C) European Monetary System. D) World Bank.
a
The Bretton Woods agreement was signed at Bretton Woods, New Hampshire, in A) 1944. B) 1929. C) 1970. D) 1973.
a
The difference between the exchange value of a money and its cost of production is defined as A) seigniorage. B) net value. C) net exchange profit. D) the face value.
a
The greater are foreign tradable goods price fluctuations, the more likely that authorities will choose a ________ exchange rate system. A) floating B) fixed C) crawling peg D) dual
a
Which of the following currencies has been replaced by the euro? A) The French franc B) The Swiss franc C) The British pound D) The Swedish krona
a
Which of the following has a currency board? A) Hong Kong B) The United States C) Mexico D) China
a
) Countries with floating exchange rates have certain characteristics. Indicate the one that does not apply to those countries. A) closed economy B) small economy C) diversified trade D) divergent inflation rates
b
An exchange rate arrangement with a free market determined floating exchange rate for capital account transactions and a fixed exchange rate for current account transactions is called A) capital-current account exchange rate system. B) dual exchange rate system. C) managed exchange rate system. D) crawling peg exchange rate system.
b
The ________ is the most popular dominant currency that countries fix their currency against. A) Swiss franc B) U.S. Dollar C) SDR D) Euro
b
Which currency below currently serves as a dominant reserve currency? A) European euro B) U.S. dollar C) Japanese yen D) British pound
b
) ________ keeps the exchange rate fixed in the short run but then adjusts its value at regular intervals to account for supply and demand pressures. A) The European Monetary System B) A managed floating C) A crawling peg D) A crawling float
c
A currency's role as an international unit of account is due to A) invoicing costs. B) transaction costs. C) information costs. D) intervention costs.
c
Given the currencies below, which was not replaced by the Euro? A) German mark B) Irish pound C) British pound D) French franc
c
Of the following exchange rate arrangements, in which does the exchange rate fluctuate around a fixed central target rate while allowing a moderate amount of fluctuation? A) Independently floating B) Currency Board C) Horizontal Bands D) Fixed peg
c
Which of the following is not a composite currency? A) The SDR B) The ECU C) The U.S. dollar D) All of the above
c
) Indicate below the activity that the IMF is not involved in. A) financing countries' BOP deficits through temporary loans B) overseeing exchange rate policies C) monitoring BOP imbalances D) issuing a composite currency called ECU
d
Before World War I, most countries belonged to a system of fixed exchange rates in which currencies were tied to which of the following assets? A) The U.S. dollar B) The British pound C) Silver D) Gold
d
For countries with high seigniorage returns, we expect A) PPP holding better. B) a high and variable inflation rate. C) a smaller role for their currencies as an international store of value. D) All of the above. Answer: D
d
In practice, the Bretton Woods system is best described as A) an adjustable peg. B) a purely fixed exchange rate C) a gold exchange standard D) Both A and C
d
Which of the currencies below does not serve a role as an international reserve currency? A) European euro B) Japanese yen C) U.S. dollar D) Mexican peso
d
Which of the following helps to determine a currency's international role as the dominant reserve currency? A) amount of seigniorage B) policy goals of national monetary authorities C) size of the domestic economic activity relative to international trade D) All of the above
d
Which of the following may not be true for "multiple exchange rates"? A) They are a form of protectionism. B) They try to improve a country's BOP. C) They use different exchange rates for different international transactions. D) They are less costly to administer than floating exchange rates.
d
) The greater domestic money supply fluctuations are, the less likely that we observe a pegged exchange rate regime.
false
) The member countries under the EMS (European Monetary System) let their currencies float jointly among themselves, but maintained a fixed exchange rate against the rest of the world.
false
) Under a gold standard system, central banks can follow an independent monetary policy
false
Argentina provides a recent example of a currency board success.
false
Evidence shows that flexible exchange rates have created a destabilizing speculation in the foreign exchange market.
false
Market forces can easily determine a currency's international role, yet government decree is most important in determining the international reserve currency status of a currency.
false
) A dual exchange rate is no different from a devaluation in that they both try to improve a country's BOP.
true
) Seigniorage is defined as the difference between the exchange value of a money and its cost of production.
true
) The European central bank is located in Frankfurt, Germany.
true
) The global financial crisis that started in 2008 has reestablished the continuing relevance of the IMF.
true
A crawling peg is an exchange rate arrangement in which the rate is adjusted in small amounts at fixed, preannounced rates.
true
Countries that trade a small amount with a single foreign country tend to float their exchange rate to the foreign country's currency.
true
The degree that PPP may hold in the short- or in the long-run is very much related to the choice of an exchange rate regime.
true
