BUS5 187: Smartbook Chp 11

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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


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