MGT 302: Chapter 11

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. Multiple choice question. arbitrage dirty float spot exchange parity

dirty float

A ______ system is when a government intervenes in the currency market to limit volatility of its currency exchange rate. Multiple choice question. pegged-float dirty-float correct fixed-float flexible-float

dirty-float

A fixed exchange rate system is supported by monetary ______ while the floating exchange rate system supports the monetary ______ argument. Multiple choice question. autonomy; discipline discipline; autonomy

discipline; autonomy

Most pegged exchange rates are tied to the ______. Multiple choice question. gold standard pound yen dollar

dollar

The purpose of the Bretton Woods meeting was to facilitate ______. Multiple choice questions. economic growth following the war international trade agreements incorrect the removal of tariff barriers in Europe the implementation of an international production model

economic growth following the war

Select all that apply What are the three main elements supporting a floating exchange rate system? economic recovery following a crisis automatic trade balance adjustments monetary policy autonomy fiscal policy reformation

economic recovery following a crisis automatic trade balance adjustments monetary policy autonomy

When the current account of a country's balance of payments is in balance it is called the balance-of-trade ______. Multiple choice question. parity equilibrium standard exchange

equilibrium

The IMF was initially established to allow members to borrow short term to adjust their balance-of-payments position and maintain their ______. Multiple choice question. trade policies exchange rate purchasing parity production centers

exchange rate

IMF data suggests that developing countries are most likely to ______. Multiple choice question. easily address foreign debt problems find quick solutions to rising inflation experience currency and banking crises escape financial crises

experience currency and banking crises

True or false: Most economists agree that a fixed exchange rate system is preferable to a floating exchange rate system.

false

A ______ exchange rate discourages competitive devaluations and imposes monetary discipline. Multiple choice question. fixed floating variable managed

fixed

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. Multiple choice question. dirty pegged fixed flexible

fixed

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. Multiple choice question. flexible fixed dirty pegged

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. Multiple choice question. fixed peg free float managed float spot exchange

fixed peg

An argument for a(n) ______ exchange rate system is that a country regains control of its money supply. Multiple choice question. absolute floating pegged fixed

floating

Monetary policy autonomy and automatic trade balance adjustments are elements that tend to support ______ exchange rates. Multiple choice question. fixed floating gold pegged

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. Multiple choice question. fixed spot floating pegged

floating

When a country cannot service its obligations on debt in foreign countries, it is experiencing a ______ crisis. Multiple choice question. currency banking foreign debt

foreign debt

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

Under the agreement at Bretton Woods, all countries were to fix the value of their currencies in terms of ______. Multiple choice question. the US dollar spot exchange rates the euro gold

gold

A dirty float results when ______ intervention is used to maintain the value of a currency. Multiple choice question. corporate government foreign consumer

government

The start of the demise of the fixed exchange rate system was notable in 1971 when the US was ______ more than ______. Multiple choice question. raising interest rates; exporting exporting; importing importing; extending loans importing; exporting

importing; exporting

Select all that apply Setting a fixed exchange rate imposes discipline on countries in two ways. What are those two ways? loosens monetary discipline so that countries can value their own currencies imposes monetary discipline on countries prevents competitive devaluations and brings stability to global trade encourages competitive devaluations that destabilize global trade

imposes monetary discipline on countries prevents competitive devaluations and brings stability to global trade

The use of currency management instruments such as swaps and the forward market have ____ (increased or decreased?) since 1973.

increased

Another name for a dirty-float system is a(n) ______ system. Multiple choice question. managed-float spot-float exchange-float falling-float

managed-float

What type of discipline is inherent in a fixed exchange rate system? Multiple choice question. tax monetary political military

monetary

The institutional arrangements that have reign over exchange rates are referred to as the international ______. Multiple choice question. currency exchange commodities exchange pegged float monetary system

monetary system

A floating exchange rate system allows a country to regain control of its ______ policy. Multiple choice question. judicial legislative tax monetary

monetya

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. Multiple choice question. one-size-fits-all divergent multi-objective flexible policy

one-size-fits-all

A(n) ______ exchange rate implies that the value of the currency is fixed relative to a reference currency. Multiple choice question. forward spot floating pegged

pegged

Many smaller nations prefer ____ rates because these exchange rates assist in moderating inflationary pressures in these countries. Multiple choice question. free float managed float variable pegged

pegged

Smaller nations prefer pegged rates because these exchange rates ______. Multiple choice question. create moderating taxes in these countries assist in decreasing government spending in these countries provide monetary discipline and lead to low inflation assist in reducing the affects of fiscal policy in these countries

provide monetary discipline and lead to low inflation

The value of the US dollar declined during the OPEC oil crisis in 1971 when the price of oil ______. Multiple choice question. quadrupled stabilized doubled dropped

quadrupled

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. Multiple choice question. tariffs speculation technology arbitrage

speculation

Governments tying currencies to gold and guaranteeing convertibility to gold is known as the gold ______. Multiple choice question. standard value agreement prime

standard

Governments tying currencies to gold and guaranteeing convertibility to gold is known as the gold ______. Multiple choice question. value agreement standard prime

standard

The Louvre Accord resulted in an agreement that ______. Multiple choice question. said exchange rates needed to be increased ensured that governments would not interfere with foreign exchange markets supported the stability of exchange rates around their current level said government may buy, but not sell, currency for any reason

supported the stability of exchange rates around their current level

The gold standard was embraced by most of the world's major trading countries in the late ______. Multiple choice question. 1900s 1800s 1700s 2000s

19

True or False: Under the Jamaica Agreement, gold was once again reintroduced as a reserve asset.

False

Select all that apply What three countries experienced a foreign debt crisis in 2010? Portugal Ireland Indonesia Greece Canada

Portugal Ireland Greece

What is the best description of the value of the US dollar against trading currencies from 1973 to now? Multiple choice question. Up until 1973, the dollar fluctuated frequently but remained constant following that time. The dollar has had numerous rapid increases and subsequent downfalls. The dollar has remained stable throughout this time period.

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? Multiple choice question. The price of imports to the U.S. decreased. The price of U.S. exports increased. The dollar was worth more. The dollar was worth less.

The dollar was worth less.

Why was the Louvre Accord assembled? Multiple choice question. The governments of the Group of Five were concerned the dollar would continue to decline. The governments of the Group of Five were interested in adopting the euro as the main trade currency. The governments of the Group of Five wanted to dismiss the gold standard. The governments of the Group of Five were committed to fostering trade with Central America.

The governments of the Group of Five were concerned the dollar would continue to decline.

The fixed rate exchange system established at Bretton Woods eventually collapsed. This collapse is attributed to the role of the ______ in the system. Multiple choice question. euro pound gold standard US dollar

US dollar

The fixed rate exchange system established at Bretton Woods eventually collapsed. This collapse is attributed to the role of the ______ in the system. Multiple choice question. pound US dollar gold standard euro

US dollar

Select all that apply Some smaller states in Africa and the Caribbean have no domestic currency. These states rely on which two foreign currencies? peso dinar US dollar euro

US dollar euro

Starting in the 1950s, the ______ concentrated on lending money for public sector projects in third-world countries. Multiple choice question. United Nations Federal Reserve World Bank International Monetary Fund

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? Multiple choice question. World Trade Organization World Bank International Monetary Fund Euro Bank

World Bank

When people behave recklessly because they know they will be bailed out if things don't go as planned, it is an example of ______. Multiple choice question. cognitive dissonance tragedy of the commons the Fischer effect a moral hazard

a moral hazard

A criticism of the IMF is that it lacks ______ because there is no body that oversees its actions and decisions. Multiple choice question. authority transparency commonality accountability

accountability

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. Multiple choice question. foreign debt currency incorrect spot exchange banking

banking

Since the 1970s, developed countries like Great Britain and the US have tended to finance their deficits by ______. Multiple choice question. borrowing private money selling foreign bonds drawing on IMF funds borrowing from the World Bank

borrowing private money

The US dollar and the Japanese yen are free to float against each other. This means that their exchange rates ___ fluctuate. Multiple choice question. constantly rarely intermittently never

constantly

Foreign exchange rates have been more volatile since 1973 due to the many ______ that have occurred in this period. Multiple choice question. crises trades exports elections

crises

When a speculative attack on the exchange value of a currency results in a depreciation of that currency, it is called a(n) _____ crisis. Multiple choice question. currency fiscal economic banking

currency

Between 1985 and 1988, the U.S. dollar ______ in value relative to major trading currencies. Multiple choice question. decreased increased

decreased

During a currency crisis, the value of a country's currency ______. Multiple choice question. stabilizes appreciates depreciates

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 ______. Multiple choice question. high inflation stagflation depression high economic growth

depression

A country is in a balance-of-trade equilibrium when ______. Multiple choice question. the income residents earn from exports exceeds the money its residents pay to other countries for imports the income residents earn from exports equals the money its residents pay to other countries for imports the income residents earn from exports is less than the money its residents pay to other countries

the income residents earn from exports equals the money its residents pay to other countries for imports

According to IMF studies, developing nations are ______ to experience currency and banking crises as compared to developed nations. Multiple choice question. less likely twice as likely three times as likely incorrect no more likely

twice as likely

Proponents of a fixed exchange system argue that this type of system reduces ______. Multiple choice question. arbitrage interest rates uncertainty investments

uncertainty

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. Multiple choice question. volatile flat low stable

volatile

Which activity occurred under the gold standard? Multiple choice question. 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. Governments would only back businesses that traded in gold and those that traded in paper were forced to barter. Governments converted financial contracts into gold at a floating rate. Governments agreed to ship gold and silver around the world to back international trade.

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.

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. Multiple choice question. WTO NAFTA UN IMF

IMF

Which statement is accurate regarding corporate influence on the international monetary system? Multiple choice question. It is in the best interests of international businesses to promote an international monetary system that minimizes volatile exchange rate movements. Businesses have no ability to influence government policy toward the international monetary system. Government lobbying by business typically has zero impact on the government's decision to intervene in the foreign exchange market. Exchange rate volatility has little bearing on international trade and investment.

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. Multiple choice question. Marshall London Jamaica Bretton Woods

Jamaica

Select all that apply The unpredictability of exchange rate movements in the post-Bretton Woods era has lead to which two situations? Made international business planning difficult Made foreign investment activities more attractive Increased foreign trade opportunities Added risk to exporting and importing

Made international business planning difficult Added risk to exporting and importing

The international ______ system is responsible for governing exchange rates. Multiple choice question. swap gold monetary correct fiscal

Monetary

The international ______ system is responsible for governing exchange rates. Multiple choice question. swap monetary fiscal gold

Monetary