intl chapter 2

The international monetary system went through several distinct stages of evolution. These stages are summarized, in alphabetic order, as follows: (i) Bimetallism (ii) Bretton Woods system (iii) Classical gold standard (iv) Flexible exchange rate regime (v) Interwar period The chronological order that they actually occurred is: Multiple Choice (vi), (i), (iii), (ii), and (v) (v), (ii), (i), (iii), and (iv) (i), (iii), (v), (ii), and (iv) (iii), (i), (iv), (ii), and (v)

(i), (iii), (v), (ii), and (iv)

On January 1, 1999, an epochal event took place in the arena of international finance when Multiple Choice eight of 15 EU countries adopted a common currency called the euro. all EU countries adopted a common currency called the euro. eleven of 15 EU countries adopted a common currency called the euro. Correct nine of 15 EU countries adopted a common currency called the euro.

11/15 adopted the euro

The United States adopted the gold standard in Multiple Choice 1776. 1864. 1973. 1879.

1879

bretton woods ended in

1973

The single European currency, the euro, was adopted by 11 member nations on January 1 of what year? Multiple Choice 2001 1991 1984 1999

1999

Under the Bretton Woods system each country established a par value for its currency in relation to the dollar. And the U.S. dollar was pegged to gold at $900 per ounce. $1 per ounce. $35 per ounce. $350 per ounce.

35$

Ecuador does not have its own national currency, circulating the U.S. dollar instead. About how many countries do not have their own national currency? Multiple Choice 40 30 20 10

40

he Bretton Woods system was named after Multiple Choice Bretton Woods, New Hampshire, where the Articles of Agreement of the International Monetary Fund (IMF) were hammered out. none of the options the treasury secretary of the United States in 1945, Bretton Woods, as well as Bretton Woods, New Hampshire, where the Articles of Agreement of the International Monetary Fund (IMF) were hammered out. the treasury secretary of the United States in 1945, Bretton Woods.

Bretton Woods, New Hampshire, where the Articles of Agreement of the International Monetary Fund (IMF) were hammered out.

Monetary policy for the countries using the euro as a currency is now conducted by Multiple Choice the Bundesbank. none of the options the Federal Reserve. European Central Bank.

ECB

A currency board arrangement is Multiple Choice when the country belongs to a monetary or currency union in which the same legal tender is shared by the members of the union. where the country pegs its currency at a fixed rate to a major currency where the exchange rate fluctuates within a narrow margin of less than one percent. a monetary regime based on an explicit legislative commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate, combined with restrictions on the issuing authority to ensure the fulfillment of its legal obligation. when the currency of another country circulates as the sole legal tender.

a monetary regime based on an explicit legislative commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate, combined with restrictions on the issuing authority to ensure the fulfillment of its legal obligation.

An "international" gold standard can be said to exist when Multiple Choice all of the options gold alone is assured of unrestricted coinage. there is two-way convertibility between gold and national currencies at stable ratios. gold may be freely exported or imported.

all

Special Drawing Rights (SDR) are Multiple Choice an artificial international reserve allotted to the members of the International Monetary Fund (IMF), who can then use it for transactions among themselves or with the IMF. used in addition to gold and foreign exchanges, to make international payments. a "portfolio" of currencies, and its value tends to be more stable than the currencies that it is comprised of. All of these choices are correct

all

The European Monetary System (EMS) has the chief objective(s) to establish a "zone of monetary stability" in Europe. all of the options to pave the way for the eventual European monetary union. to coordinate exchange rate policies vis-à-vis the non-EMS currencies.

all

The international monetary system can be defined as the institutional framework within which Multiple Choice international payments are made. all of the options movement of capital is accommodated. exchange rates among currencies are determined.

all

Under the Bretton Woods system Multiple Choice each country was responsible for maintaining its exchange rate within 1 percent of the adopted par value by buying or selling foreign exchanges as necessary. All the choices are correct. there was an explicit set of rules about the conduct of international monetary policies. the U.S. dollar was the only currency that was fully convertible to gold.

all choices

Under a gold standard, if Britain exports more to France than France exports to Great Britain, such international imbalances of payment will be corrected automatically. all of the options net export from Britain will be accompanied by a net flow of gold in the opposite direction. this type of imbalance will not be able to persist indefinitely.

all options

Under the Bretton Woods system Multiple Choice all of the options each country established a par value for its currency in relation to the dollar. each country was responsible for maintaining its exchange rate within 1 percent of the adopted par value by buying or selling foreign exchanges as necessary. the U.S. dollar was pegged to gold at $35 per ounce.

all options

Gresham's Law states that Multiple Choice bad money drives good money out of circulation. if a country bases its currency on both gold and silver, at an official exchange rate, it will be the more valuable of the two metals that circulate. none of the options. good money drives bad money out of circulation.

bad money drives good money out of circulation.

During the period between World War I and World War II, many central banks followed a policy of sterilization of gold by restricting the rate of growth in the supply of gold. none of the options by matching inflows and outflows of gold respectively with increases and reductions in domestic money and credit. by matching inflows and outflows of gold respectively with reductions and increases in domestic money and credit.

by matching inflows and outflows of gold respectively w reductions and increases in domestic money and credit

Following the demise of the Bretton Woods system, the IMF Multiple Choice became the central bank of the United Nations. created a new role for itself, providing loans to countries facing balance-of-payments and exchange rate difficulties. ceased to exists, since the era of fixed exchange rates had ended. became the sole agent responsible for maintaining fixed exchange rates.

created a new role for itself, providing loans to countries facing balance-of-payments and exchange rate difficulties.

According to the "Trilemma" a country can attain only two of the following three conditions: (1) A fixed exchange rate, (2) free international flows of capital, and (3) an independent monetary policy. This difficulty is also known as Multiple Choice the Trilemma. none of the options the Tobin tax. the incompatible trinity.

incompatibel trinity

With regard to the current exchange rate arrangement between the U.S. and the U.K., it is best characterized as Multiple Choice managed float. independent floating (market determined). pegged exchange rate within a horizontal band. currency board.

independent

in the years leading to collapse of bretton woods it became clear that the dollar was undervalued. it became clear that the dollar was overvalued.

it became clear that the dollar was overvalued.

Since the SDR is a "portfolio" of currencies Multiple Choice its value tends to be as stable as the average of the individual currencies included in the SDR. its value tends to be less stable than the value of any of the individual currencies included in the SDR. none of the options its value tends to be more stable than the value of any of the individual currencies included in the SDR.

its value tends to be more stable than the value of any of the individual currencies included in the SDR.

Gold was officially abandoned as an international reserve asset Multiple Choice none of the options in the January 1976 Jamaica Agreement. in the 1971 Smithsonian Agreement. in the 1944 Bretton Woods Agreement.

jamaica agreement

To pave the way for the European Monetary Union, the member countries of the European Monetary System agreed to achieve a convergence of their economies. Which of the following is not a condition of convergence: Multiple Choice keep gross public debts below 60 percent of GDP. achieve a high degree of price stability. maintain its currency at a fixed exchange rate to the ERM. keep the ratio of government budget deficits to GDP below 3 percent.

maintain its currency at a fixed exchange rate to ERM

The advent of the euro marks the first time that sovereign countries have voluntarily given up their Multiple Choice fiscal policy independence to foster economic integration. national borders to foster economic integration. national debt to foster economic integration. monetary independence to foster economic integration.

monetary independence to foster economic integration

A central bank can fix an exchange rate Multiple Choice in perpetuity. only for as long as it has independence of monetary policy. only for as long as it has reserves of gold. only for as long as the market believes that it has the political will to do so.

only for as long as the market believes that it has the political will to do so.

Suppose that the United States is on a bimetallic standard at $30 to one ounce of gold and $2 for one ounce of silver. If new silver mines open and flood the market with silver, Multiple Choice only the silver currency will circulate. none of the options. only the gold currency will circulate. no change will take place since citizens could exchange their gold currency for silver currency at any time.

only silver will circulate

During the period of the classical gold standard (1875-1914) there were Multiple Choice no exchange rates. highly volatile exchange rates. moderately volatile exchange rates. volatile exchange rates. stable exchange rates.

stable

Under a purely flexible exchange rate system Multiple Choice governments can set the exchange rate by buying or selling reserves. governments can set the exchange rate by buying or selling reserves and with fiscal policy. governments can set exchange rates with fiscal policy. supply and demand set the exchange rates.

supply and demand set rates

which country is not using the euro

sweden

Under the Bretton Woods system, Multiple Choice none of the options all currencies of member states were fully convertible to gold. the U.S. dollar was the only currency that was fully convertible to gold; other currencies were not directly convertible to gold. all currencies of member states were fully convertible to gold or silver.

the U.S. dollar was the only currency that was fully convertible to gold; other currencies were not directly convertible to gold.

Assume that a country is on the gold standard. In order to support unrestricted convertibility into gold, banknotes need to be backed by a gold reserve of some minimum stated ratio. In addition, Multiple Choice the domestic money stock should rise and fall as gold flows in and out of the country. the central bank can control the money supply by buying or selling the foreign currencies. the domestic money stock should rise and fall as gold flows in and out of the country and the central bank can control the money supply by buying or selling the foreign currencies. none of the options

the domestic money stock should rise and fall as gold flows in and out of the country.

The main cost of European monetary union is Multiple Choice lessened political integration. the loss of national monetary and exchange rate policy independence. none of the options increased exchange rate uncertainty.

the loss of national monetary and exchange rate policy independence.

The monetary system of bimetallism is unstable. Due to the fluctuation of the commercial value of the metals, Multiple Choice the metal with a commercial value lower than the currency value tends to be used as metal and is withdrawn from circulation as money (Gresham's Law). none of the options the metal with a commercial value higher than the currency value tends to be used as metal and is withdrawn from circulation as money (Gresham's Law). the metal with a commercial value higher than the currency value tends to be used as money (Gresham's Law).

the metal with a commercial value higher than the currency value tends to be used as metal and is withdrawn from circulation as money (Gresham's Law).

One potential drawback of the gold standard is that Multiple Choice all of the options gold is scarce. the world economy can be subject to inflationary pressure without changes in the supply of monetary gold. the world economy can be subject to deflationary pressure due to the limited supply of monetary gold.

the world economy can be subject to deflationary pressure due to the limited supply of monetary gold.

in the eu

there is a low degree of fiscal intergration among eu countries

Another name for the incompatible trinity is the Multiple Choice none of the options Tobin Tax. Triffin Paradox. Trilemma.

triffin paradox

During the period between World War I and World War II, while most countries abandoned the gold standard during World War I, international trade and investment flourished during the interwar period under a coherent international monetary system. none of the options the major European powers and the U.S. returned to the gold standard and fixed exchange rates. the U.S. dollar emerged as the dominant world currency, gradually replacing the British pound for the role

us dollar emerged as dominant world currency

Once the changeover to the euro was completed by July 1, 2002, the legal-tender status of national currencies in the euro zone Multiple Choice was tied to gold. none of the options was canceled, leaving the euro as the sole legal tender in the euro zone countries. was affirmed at the fixed exchange rate.

was canceled, leaving the euro as the sole legal tender in the euro zone countries.

first full-fledged gold standard was established in 986 during the Han dynasty in China. was not established until 1821 in Great Britain, when notes from the Bank of England were made fully redeemable for gold. was not established until 1780 in the United States, when notes from the Continental Army were made fully redeemable for gold. none of the options

was not established until 1821 in Great Britain, when notes from the Bank of England were made fully redeemable for gold.

The core of the Bretton Woods system was the Multiple Choice World Bank. Interstate Commerce Commission. IMF. United Nations.

world bank

The majority of countries got off the gold standard in 1914 when Multiple Choice World War II started. none of the options the American Civil War ended. World War I broke out.

ww1