Chapter 11 Int'l Business Smartbook

When a country does not adopt a formal pegged rate, but tries to keep its currency within some range of a reference currency, this is called a(n) ______ system.

dirty float

A fixed exchange rate system is supported by monetary ______ while the floating exchange rate system supports the monetary ____ argument.

discipline; autonomy

Most pegged exchange rates are tied to the _____.

dollar

When the current account of a country's balance of payments is in balance it is called the balance-of-trade _____.

equilibrium

A _______ exchange rate is when the values of a set of currencies are fixed against each other at an exchange rate to which both parties agree.

fixed

The most common exchange rate regime used today is the _______ arrangement, used by 43% of the nations.

fixed peg

When the foreign exchange market determines the relative value of a currency in a country, that country is using a(n) ______ exchange rate regime.

floating

Monetary policy autonomy and automatic trade balance adjustments are elements that tend to support ______ exchange rates.

floatinggggg

Following the Industrial Revolution, to allow for the use of paper currencies to finance trade, governments agreed to convert the paper currency into _____________ on demand at a fixed rate.

gold

The _____ was thought to have a direct correlation with a balance-of-trade equilibrium by all countries.

gold standard

A dirty float results when _____ intervention is used to maintain the value of a currency.

government

The start of the demise of the fixed exchange rate system was notable in 1971 when the US was _____ more than _____.

importing; exporting

Setting a fixed exchange rate imposes discipline on countries in two ways. What are those two ways?

imposes monetary discipline on countries and prevents competitive devaluations and brings stability to global trade

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 international _____ system is responsible for governing exchange rates.

monetary

What type of discipline is inherent in a fixed exchange rate system?

monetary

The institutional arrangements that have reign over exchange rates are referred to as the international _______.

monetary system

A ________ rate 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

Many smaller nations prefer _____ rates because these exchange rates assist in moderating inflationary pressures in these countries.

peggedddddDDDDD

A(n) _____ exchange rate implies that the value of the currency is fixed relative to a reference currency.

peggedddddd

Smaller nations prefer pegged rates because these exchange rates _____.

provide monetary discipline and lead to low inflation

The value of the US dollar declined during the OPEC oil crisis in 1971 when the price of oil _____.

quadrupled

Governments tying currencies to gold and guaranteeing convertibility to gold is known as the gold _____.

standard

The gold standard was embraced by most of the world's major trading countries in the late _____.

1800s

Between 1985 and 1988, the U.S. dollar ______ in value relative to major trading currencies.

DECREASED

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

FALSE

Under the Jamaica agreement, floating rates were declared unacceptable. True or False?

FALSEeeeee

A ______ exchange rate discourages competitive devaluations and imposes monetary discipline.

FIXED

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

FIXEDddddd

The Jamaica agreement was a way to recognize current trends and adjust for _____ exchange rates.

FLOATING

The Turkish lira lost about 40 percent of its value against the U.S. dollar in the first part of 2018. Which type of exchange rate system does Turkey follow?

FLOATINGGGGGGG

Under the agreement at Bretton Woods, all countries were to fix the value of their currencies in terms of _____.

GOLD

Nicaragua bases the valuation of its currency on the U.S. dollar. The value of Nicaragua's currency is changed based on the changes in the value of the dollar. This is an example of a ________ exchange rate system.

PeggeddDDDD

What is the best description of the value of the US dollar against trading currencies from 1973 to now?

The dollar has had numerous rapid increases and subsequent downfalls.

The United States raised the dollar price of gold by nearly $15 per ounce in 1934. Which of the following was true in the given scenario?

The dollar was worth less.

True or false: When countries began to devalue their currencies at will, confidence in the gold standard lessened.

True

The fixed rate exchange system established at Bretton Woods eventually collapsed. This collapse is attributed to the role of the _____ in the system.

US Dollar

Some smaller states in Africa and the Caribbean have no domestic currency. These states rely on which two foreign currencies?

US Dollar or the Euro

In 2018, investors worried about the uncertainty in the Turkish economy, began exchanging their lira investments for U.S. dollars. Under a floating exchange rate system, how is the value of a currency determined?

Under a floating exchange rate system, the value of a currency is determined by the market forces of supply and demand.

Starting in the 1950s, the _____ concentrated on lending money for public sector projects in the third world.

WORLD BANK

What financial institution was tasked with assisting in rebuilding Europe after World War II, but ended up helping third-world countries with public sector projects?

World Bank

What are the three main elements supporting a floating exchange rate system?

automatic trade balance adjustments, monetary policy autonomy, and economic recovery following a crisis

The biggest advantage of the the gold standard was that it provided a powerful way to achieve _________ equilibrium for all countries.

balance-of-trade

The US dollar and the Japanese yen are free to float against each other. This means that their exchange rates _____ fluctuate.

constantly

Foreign exchange rates have been more volatile since 1973 due to the many ______ that have occurred in this period.

crises

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 OPEC oil crisis in 1971 increased the US inflation rate, which led to negative effects on the trade position, and this led to a(n) ______ in the value of the dollar.

decrease

When Great Britain returned to the gold standard in 1925, it placed the pound at the prewar gold parity level and, as a result, placed the country in a period of

depression

A country is in a balance-of-trade equilibrium when ___________.

the income residents earn from exports equals the money its residents pay to other countries for imports

The Bretton Woods agreement called for a system of fixed exchange rates that would be policed by the International Monetary Fund.

trueeeee

Foreign exchange rates have been very _____ since 1973 due to the many crises that have occurred in this period, such as the OPEC oil crises and the Asian currency crisis.

volatile

Which of the following occurred under the gold standard?

Governments agreed to convert paper currency into gold on demand at a fixed rate to allow for the use of paper currencies to finance trade.

By the start of World War ____ , the gold standard was no longer of value.

II

Which institution was established at Bretton Woods to maintain order in the international monetary system?

International Monetary Fund

Turkey's president is concerned that halting the fall of the Turkish lira by raising interest rates will make his government less popular. What is the upside of a weak lira?

It helps Turkey's trade deficit.

A company in Turkey holds a loan in U.S. dollars. What does the downward pressure on the value of the Turkish lira mean for this company?

It will cost more lira to pay back the dollar-based loans.

The ______ Agreement revised the IMF's Articles of Agreement to allow floating exchange rates.

Jamaica