Chapter 09: International Monetary Relations InQuizitive

Put the steps of a typical currency crisis in order from first to last.

1. The government commits itself to a fixed exchanged rate 2. the government faces difficulty in sticking to its promised exchange rate 3. people, especially investors, lose faith in the government's ability to keep its exchange rate 4. investors sell off the natino's currency, exchanging it for more reliable foreign currencies 5. the government devalues its currency

Choose all of the following that accurately characterize China's monetary policy over the past few decades.

1. The government has purchased and kept large reserved of U.S. dollars 2. The government has kept its currency artificially weak 3. One of China's main monetary goals has been to encourage the growth of domestic manufacturers

Choose all of the following that are reasons a country might want a weak currency relative to other currencies.

1. a weaker currency encourages foreigners to buy its goods 2. a weaker currency allows groups such as domestic farmers to be more competitive on the international market

Choose all of the following that are principal features of an international monetary regime.

1. an understanding of whether currencies are fixed, floating, or a combination thereof 2. agreement on what benchmark or standard currency value will be based on

imagine that on January 1 a person could exchange one dollar for one euro. later that year, on December 1, the person could exchange one dollar for two euros. we would therefore say that the dollar had ______ relative to the euro, whereas the euro had _______ relative to the dollar.

1. appreciated 2. been devalued

Choose all of the following that are reasons a government might want a floating exchange rate.

1. floating exchange rates allow economic policies to have greater flexibility 2. central banks have more authority with floating exchange rates

Which of the following were features of the gold-standard international monetary regime? Choose all that are correct.

1. it proved contentious in places like the United States 2. the system relied on major financial powers being willing to stabilize each other through emergency loans

What reasons did supporters give for wanting to move the United States from the gold standard to the silver standard in the late 1800s and early 1900s?

1. it would make American exports more competitive by devaluing the dollar 2. it would have helped debtors

Which groups or individuals would benefit more from a floating currency, and which would benefit more from a fixed currency?

Floating currency: central banks, businesses that are entirely domestic in nature Fixed currency: businesses that conduct international trade

Which of the following best captures the relationship between interest rates and exchange rates?

a country with higher interest rates will have a stronger currency

the price at which one can trade dollars for euros is known as which of the following?

exchange rate

The United States is currently on a fixed exchange rate with the dollar pegged to the value of gold.

false

Match the type of exchange rate with the corresponding example(s).

fixed: panama pegs its currency to the value of the US dollar gold standard: the united states allows individuals to trade their currency for a set amount of gold per dollar floating: the us allows the value of its currency to change based on supply and demand

This kind of policy is used by national governments to influence macroeconomic conditions such as unemployment and economic growth. It is based on changes to the interest rate and money supply of an economy.

monetary

The fictional state of Atlantis contains many groups within it. Some of these groups would prefer that Atlantis have a strong currency while others would prefer a weak currency. Indicate which type of currency the following groups would prefer.

strong currency: domestic consumers, tourists who travel overseas weak currency: domestic manufacturers who sell overseas, farmers

In the modern international monetary order, currencies are backed by which of the following?

the commitment of issuing governments to maintain their values

Why did many European countries face difficult currency decisions in 1991 and 1992?

they had pegged their currency to Germany's, and Germany was engaging in rapid interest rate increases

Currency crises that start in one country often spread to others.

true