International Business Chapter 7

What is the function of the international monetary system?

establishes the rules by which countries value and exchanges currencies.

List the four major accounts of the BOP accounting system and their components

1. Current Account 2. Capital Account 3. Official Reserves 4. Errors and Omissions

Why are quotas important to IMF members?

International Monetary Fund (IMF) To join, a country must pay a deposit, called quota, partly gold and partly in the country's own currency. 1. A country's quota determines its voting power within the IMF. 2. A country's quota serves as part of tis official reserves. 3. The quota determines the country's borrowing power from the IMF.

Why did the Bretton woods system collapse in 1971

The situation resembles a run on a bank. Banks never have enough cash on hand to honor all their liabilities. If people lose that trust and withdraw more of their money than the bank has on hand, the bank could be in trouble.

What was the initial goal of the world bank?

To help finance reconstruction of the war-torn European economies.

Why was the IFC established by the world bank?

To promote the development of the private sector in developing countries. Acting as an investment banker

Describe the differences between a fixed exchange rate system and a flexible exchange rate system

Under flexible exchanges rate system, supply and demand for a currency determine tis price in the world market.

Why is the gold standard a type of fixed exchange rate system?

the price of a given currency does not change relative to each other currency. The gold standard created a fixed exchange rate system because each country tied, or pegged, the value of its currency to gold.