IBUS 330: Quiz 11

A country in a state of fundamental disequilibrium suffers from

Permanent adverse shifts in the demand for its products.

A currency board can issue additional domestic notes and coins only when there are foreign exchange reserves to back it.

True

Speculative buying and selling of currencies can create volatile movements in exchange rates under the present foreign exchange system.

True

A country has adopted a dirty-float system over a clean-float system. In doing so the country has agreed to

allow the central bank to maintain the value of its currency.

A __________ occurs when a speculative attack on the exchange value of a currency results in a sharp depreciation in the value of the currency or forces authorities to expend large volumes of international currency reserves and sharply increase interest rates to defend the prevailing exchange rate.

currency crisis

The Bretton Woods agreement implemented a system of __________ exchange rates.

fixed

A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a _________ rate

fixed exchange

Increasingly, the International Monetary Fund (IMF) has been acting as the macroeconomic police of the world economy by

insisting that countries seeking significant borrowings adopt IMF-mandated macroeconomic policies.

A managed float is the exchange rate policy where the government

intervenes in the exchange rate system only in a limited way.

A banking crisis refers to

loss of confidence in the banking system

The International Monetary Fund was established at the Bretton Woods conference to

maintain order in the international monetary system

The idea that each country should be allowed to choose its own inflation rate is called the ________ argument

monetary autonomy

The United Arab Emirates (UAE) bases the valuation of its currency on the U.S. dollar. The value of the UAE's currency is changed based on the changes in the value of the dollar. This is an example of a _______________ exchange rate system.

pegged

A _______________ means the value of the currency is fixed relative to a reference currency and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate.

pegged exchange

A pegged exchange rate means the value of a currency is flexible against a set of currencies.

False

Advocates say that fixed exchange rates can help a country deal with economic crises.

False

Minimal government deficits are an underlying cause of a foreign debt crisis

False

The result of the Bretton Woods agreement was that fixed exchange rates were desirable. However, most countries preferred a floating exchange rate instead.

False

Under the Jamaica agreement, floating rates were declared unacceptable.

False

If a country increases its money supply rapidly under a fixed exchange rate regime, then

the country willace nign levels of price inflation