Chapter 8 T/F
A central reserve asset is a holding that has value that is held by private banks in case of a liquidity crisis.
False
Allied and Axis governments met in Bretton Woods in the final days of World War II
False
De Gaulle pushed Nixon to close the gold window at the Treasury, and this one action moved the IMF toward a floating exchange rate system.
False
Exchange rate forecasting is an advanced science; with the correct data, we can predict with accuracy exchange rate movements.
False
Monetary policies control the collecting and spending of money by governments.
False
One possible current currency arrangement is a fixed peg, whereby the exchange rate of a currency is allowed to move (within a narrow band) with another currency. One example is the pegging of the Canadian dollar to the U.S. dollar.
False
Tariffs are not a financial force; they are a political force.
False
The Big Mac index is an example of purchasing power parity, an international measure of junk-food consumption.
False
The Bretton Woods meeting in 1944 established a fixed-rate exchange system among Allied governments that was imposed on the Axis governments.
False
The Bretton Woods system led to minimal growth in international trade but helped to reduce inflation levels.
False
The United States in recent years has had a significant deficit in its current account. This means that U.S. citizens are exporting more than they are importing.
False
The balance of payments is a record of a country's transactions with its major trading partners.
False
The complexity of the gold standard was a part of its appeal.
False
The controlling mechanism for a gold-based exchange system and a floating-rate system are the same.
False
The exchange rate for today for delivery within two days is known as the current rate.
False
The law of one price states that in an efficient market, like products will never have like prices.
False
As a result of Bretton Woods and the dollar's use as a proxy for gold, the United States ran up a balance-of-payments deficit of around $56 billion, which led to the United States going off the gold exchange standard in 1971.
True
BOP accounts are recorded in a double-entry bookkeeping method, with each transaction having debit and credit sides.
True
Brazil, India, and the United States are among the highest corporate tax locations.
True
China participates in the management of the international financial environment by managing its currency.
True
Countries put limitations on the convertibility of their currencies when they are concerned that their foreign reserves could be depleted.
True
Currencies float because they are allowed to make their own adjustments in the marketplace.
True
Global foreign currency exchange transactions total in the area of $4 trillion daily.
True
If freely floating currencies are allowed to fluctuate against one another, at times the fluctuations might be quite large
True
In POB accounting, a deficit in the current account is always accompanied by a surplus in the capital account.
True
Inflated currencies tend to weaken.
True
One exchange arrangement is to have no separate legal tender.
True
Sir Isaac Newton established the price of gold in 1717 and de facto put England on the gold standard.
True
The Bank for International Settlements is like a central bank for central bankers.
True
The Bank for International Settlements operates as the banker for central banks.
True
The Bretton Woods system worked until the late 1960s.
True
The Fisher effect describes interest rate parity; it's the law of one price applied to interest rates. Interest rates vary to take into account anticipated differences in inflation levels.
True
The international Fisher effect states that the interest rate differentials for any two currencies reflect the expected change in their exchange rates.
True
The random walk hypothesis suggests that the best predictor of tomorrow's currency prices are today's prices.
True
The spot rate is the rate for exchange within two days in the currency market.
True
The value-added tax (VAT) can be rebated to exporters, according to WTO rules.
True
When a business pays in dollars for an import from Turkey, the dollars that leave the United States will eventually show up as a credit on the U.S. capital account.
True
When a country imports more than it exports, the currency might be expected to weaken.
True