IBUS Final Quiz 7

Which of the following is the reason why the current foreign-exchange system is sometimes thought of as a managed-float system? A) Major currencies are allowed to freely float against each other B) The exchange rates of a currency are determined by market forces C) Countries use a reference currency to estimate the value of their currencies D) Governments intervene frequently in the foreign exchange market

Governments intervene frequently in the foreign exchange market

The agreement reached at Bretton Woods established _____.

International Monetary Fund

Which of the following is a function of World Bank? Implementing a flexible fixed exchange rate regime Promoting gold standard across the world Implementing a rigid fixed exchange rate regime Lending money to governments for development

Lending money to governments for development

Which of the following statements is true of pegged exchange rates? A) Pegged exchange rates are popular among many of the world's smaller nations B) A pegged exchange rate allows a country's currency to be determined by market forces C) A pegged exchange rate weakens the monetary discipline of a country D) Adopting a pegged exchange rate regime increases inflationary pressures in a country

Pegged exchange rates are popular among many of the world's smaller nations

What will happen if a country increases its money supply rapidly under fixed exchange rate regime? Imports will become less attractive in that country The country's products will become more attractive in world markets The country will face negative inflation Trade deficit would widen in that country

Trade deficit would widen in that country

A pegged exchange rate means the value of a currency is fixed relative to a reference currency.

True

The agreement reached at Bretton Woods established the International Monetary Fund (IMF) and the World Bank.

True

When the foreign exchange market determines the relative value of a currency, we say that the country is adhering to a _____ regime. pegged exchange rate fixed exchange rate floating exchange rate currency board exchange

floating exchange rate

Which of the following statements is true of the Gold standard? Gold standard was not helpful in maintaining balance-of-trade equilibrium Currencies were pegged to gold under the gold standard Gold standard was adopted only by the smaller nations of the world Convertibility to gold was not guaranteed under the gold standard

Currencies were pegged to gold under the gold standard

A currency crisis occurs due to _____. a speculative attack on the exchange value high levels of trade deficit the loss of confidence in a country's banking system heavy foreign debt obligations

a speculative attack on the exchange value

Which of the following will help a company hedge against currency fluctuations? Dispersing production to different geographic locations In-house manufacturing of raw materials Finding a large supplier to supply all the raw materials Basing business in a single country

Dispersing production to different geographic locations

The international monetary system refers to the institutional arrangements that govern _____.

Exchange rates

A dirty float occurs when a country uses pegged exchange rates to value its currency.

False

Implementing a fixed exchange rate regime increases the price inflation in countries.

False

The gold standard called for fixed exchange rates against the U.S. dollar.

False

A dirty float refers to a situation in which _____. many countries join hands to form a monetary system and an exchange rate a country tries to hold its currency against an important reference currency without a formal pegged rate more than one foreign currency is used as the formal reference for a country's currency a set of currencies are fixed against each other at some mutually agreed on exchange rate

a country tries to hold its currency against an important reference currency without a formal pegged rate