Ch 11 International Business
In the 1990s, one of the reasons for the appreciation of the US dollar was
foreign investment in US stocks and bonds, which drove up the value of the dollar on foreign exchange.
Under the gold standard, the amount of currency needed to purchase one ounce of gold is referred to as the ______.
gold par value
The strength claimed for the _______ is that it allowed a balance-of-trade equilibrium for all countries.
gold standard
A fixed rate system can ensure that ______ do not respond to political pressures by expanding the monetary system too quickly and causing inflation.
governments
The start of the demise of the fixed exchange rate system was partly due to the US ______ more than ______.
importing; exporting
Smaller nations prefer pegged rates because these exchange rates
impose monetary discipline and lead to low inflation.
The use of currency management instruments such as swaps and the forward market have ______ since 1973.
increased
The fixed exchange rate is considered a way to control _____.
inflation
During the 1980s and 1990s, exchange rate movements were not strongly influenced relative to ______ which was contrary to the purchasing power parity theory.
inflation rates
Under the IBRD scheme of lending money by the World Bank, money is raised through _____.
international bond sales
The ______ refers to the institutional arrangements that govern exchange rates.
international monetary system
In 1934, the US raised the dollar price of gold by nearly $15 an ounce, implying that the dollar was worth ______.
less
The IMF lends money to nations experiencing financial crisis in return for
macroeconomic policy implementation.
When a country does NOT adopt a formal pegged rate, but tries to keep its currency within some range of a reference currency, a(n) ______ system exists.
managed-float
A fixed exchange rate discourages competitive devaluations and imposes ______ discipline.
monetary
An argument against a fixed rate system is that this system limits countries' abilities to use ______ policy to expand or contract their economies.
monetary
One argument for a floating exchange rate system is that a country regains control of its ______ policy.
monetary
In response to the 2008-2009 global financial crisis, the IMF has begun to change its focus. It now cautions nations to adopt policies that include fiscal stimulus and
monetary easing.
In 1971, many countries did NOT want to simultaneously revalue the dollar because it would make their products ______ relative to US products.
more expensive
A major criticism of the IMF is that it imposes tight macroeconomic policy on any country it lends money to. This is referred to as a(n) ______ approach.
one-size-fits-all
As part of its agreement with the IMF to borrow funds in 1997, South Korea agreed to
open its economy and banking system to foreign investors.
Many smaller nations prefer ______ rates because these exchange rates lead to low inflation.
pegged
As the text explains, under a fixed exchange rate, if Great Britain rapidly increased its money supply by printing pounds, then this increase in the money supply would lead to ______.
price inflation
Critics of floating exchange rates argue that the external value of currency has no effect on the trade balance. They believe that the balance between ______ determines the trade deficit.
savings and investment
The forward market tends to cover _____ exchange rate changes.
short-term
By 2002, when foreign investors became less interested in US stocks and bonds, the inflow of money into the United States
slowed down.
Advocates of a fixed exchange rate contend that a fixed system will limit the destabilizing effects of
speculation
The World Bank's initial role was to help finance the building of Europe's war-torn economy. The Bank's role changed when _____ implemented the Marshall Plan and lent money directly to European nations.
the United States
In 1987, the Group of Five met over concerns that ______ and the result was the creation of the Louvre Accord.
the dollar might decline too far
A dirty-float system is said to exist in a nation when _____ frequently intervene(s) in the foreign exchange market.
the government
IDA loans provided by the World Bank are only available to
the poorest countries.
The Louvre Accord resulted in an agreement
to support the stability of exchange rates around their current level by intervening when necessary.
In April 2009, major IMF members agreed to ______ the IMF's resources to give the institution greater financial leverage to act in times of global financial crisis.
triple
According to the IMF study of countries from 1975 to 1997 noted in the text, developing nations were ______ to experience currency and banking crises as compared to developed nations.
twice as likely
In 1944, representatives from 44 countries met in ______ to create a new international monetary system.
Bretton Woods
Which statement regarding the gold standard is accurate?
By the start of World War II, the gold standard was dead.
Prior to introducing the euro, several member states in the EU operated with fixed exchange rates under the
European Monetary System.
______ exchange rates are determined by market forces; they vary against each other from one day to another.
Floating
The policy position of the ______ is that when this institution lends money to countries, it imposes a tight macroeconomic policy that is not always considered appropriate by critics.
International Monetary Fund
What statement accurately describes the corporate-government relationship and the foreign exchange market?
It is in the best interests of international businesses to promote an international monetary system that minimizes volatile exchange rate movements.
The ______ Agreement revised the IMF's Articles of Agreement and addressed floating exchange rates.
Jamaica
Identify the initiative under which the United States lent money directly to countries in Europe to rebuild after World War II.
Marshall Plan
What is the term used to define the situation where people act without due thought because they believe they will be rescued when things go wrong?
Moral hazard
Which statement accurately describes the IMF's ability to enforce the economic policies a country should adopt in exchange for loans?
The IMF cannot force countries to adopt the policies required to correct economic mismanagement.
What is the gold par value?
The amount of currency needed to purchase one ounce of gold
The balance of trade is the difference between the monetary value of a nation's exports and imports over a certain period. What occurs when a balance-of-trade equilibrium exists?
The income residents earn from exports equals the money its residents pay to other countries for imports.
Which currency contributed to the collapse of the fixed rate exchange system established at Bretton Woods since it was the only one that could be converted into gold?
US dollar
How can the dollar exchange rate BEST be described under the floating exchange regime?
Volatile
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
Which institution was established at Bretton Woods in order to promote general economic development?
World Bank
In 1971, the OPEC oil crisis increased the inflation rate in the US, which led to negative effects on the country's trade position and
a decline in the value of the dollar.
An example of ______ is when banks lend too much money to over-extended companies, expecting bail-out help from their government.
a moral hazard
A currency crisis occurs when
a speculative attack on the currency exchange value creates a sharp depreciation in the value of currency.
A criticism of the IMF is that it lacks ______ because there is no one who oversees its actions and decisions.
accountability
Because the IMF does NOT have oversight over its decisions, a criticism of this institution is that it lacks
accountability.
With a deteriorating balance-of-payments occurring between 1980 and 1985, the US dollar displayed _____.
an unexpected rise
The ______ equilibrium for all nations was achieved by the gold standard.
balance-of-trade
A ______ crisis occurs when businesses and people lose confidence in their financial institutions and withdraw their deposits.
banking
When news reports indicated a massive stock market crash, many individuals went directly to the bank and withdrew their savings because they weren't confident in the financial system. This response is an example of a(n) _____ crisis.
banking
If one ounce of gold in dollars cost 25, and one ounce of gold in pounds cost 10, then the exchange rate for converting pounds into dollars is ______.
$2.50
South Korea requested ______ in loans from the IMF to help the country recover from its 1997 financial crisis even though it was apparent the country would need far more than that.
$20 billion
The gold standard was adopted by the world's major trading nations by the late _____.
1800s
In 2018, the IMF had ______ members, around ______ of which had some kind of IMF program in place.
189; 40
Since the 1970s, developed countries like Great Britain and the US have tended to finance their deficits by
borrowing private money.
A(n) ______ is a monetary authority which converts domestic currency on demand into another currency at a fixed exchange rate.
currency board
According to the critics of the floating exchange rate, the uncertainty of exchange rates tends to _____ the growth of international trade and investment.
dampen
What type of company is best-suited for contracting out manufacturing in an effort to reduce economic exposure as the result of exchange rate movements?
A textile firm
Critics of the Bretton Woods system say that if a country is running a trade deficit in a floating exchange rate system, the exchange rate will ______, making its exports cheaper and imports more expensive, which should correct the trade deficit.
depreciate
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.
Under the Bretton Woods system, if Country A imported more goods than it exported which created a permanent deficit in the balance of trade that wasn't correctable by domestic policy, the IMF would be required to _____.
devalue the currency
Since the mid-1970s, the IMF's loan activities have been mostly targeted toward _____.
developing nations.
A currency can be determined by market forces, yet managed in the sense that -- if it depreciates too rapidly -- the government will step in. This is known as a ______ system.
dirty-float
When a government intervenes in the currency market to limit volatility of its currency, a(n) ______ system exists.
dirty-float
One way a company can successfully hedge against currency fluctuations is to
disperse production to different locations around the world.
If high inflation causes the devaluation of a country's currency, it may opt to abandon that currency and adopt US currency. This process is called _____.
dollarization
The IMF was initially established to allow members to borrow short term to adjust their balance-of-payments position and maintain their ______.
exchange rate
The international monetary system establishes the rules and regulations that govern ______.
exchange rates
In recent years, the IMF's activities have ______.
expanded
Between 1985 and 1987, the U.S. dollar _____ in value against the Japanese yen and German deutsche mark.
fell
A ______ exchange rate is a country's exchange rate regime under which the values of a set of currencies are set against each other at some mutually agreed-on exchange rate.
fixed
The world's major industrial nations utilized the ______ exchange rate system after World War II.
fixed
A currency board holds reserves of foreign currency equal to all of the domestic currency at a
fixed rate.
A pegged exchange rate means the value of a currency is
fixed relative to a reference currency, such as the US dollar.
South Korea's export-led economic recovery from its 1997 banking crisis was possible because of its ______ exchange rate system.
floating
A(n) _____ crisis occurs when a country cannot repay what they owe to private sector investors of other countries or other governments.
foreign debt
Greece's inability in 2010 to service its foreign debt obligations in either the private sector or government, resulted in a(n) ______ crisis.
foreign debt
A floating exchange rate exists when the ______ determine(s) the relative value of a currency.
foreign exchange markets
