Chapter 11: The International Monetary SystemAssignment
Starting in the 1950s, the _____ concentrated on lending money for public sector projects in the third world.
World Bank
When people behave recklessly because they know they will be bailed out if things don't go as planned, it is an example of ______.
a moral hazard
What are the three main elements supporting a floating exchange rate system?
automatic trade balance adjustments economic recovery following a crisis monetary policy autonomy
A _____ crisis refers to a loss of confidence in the banking system that leads to a run on banks, as individuals and companies withdraw their deposits. This is what happened in Iceland in 2008.
banking
A ______ crisis occurs when businesses and people lose confidence in their financial institutions and withdraw their deposits.
banking
Since the 1970s, developed countries like Great Britain and the US have tended to finance their deficits by ________.
borrowing private money
The US dollar and the Japanese yen are free to float against each other. This means that their exchange rates _____ fluctuate.
constantly
During a currency crisis, the value of a country's currency _____.
depreciates
True or false: Businesses have no ability to influence government policy toward the international monetary system.
false
Another name for a dirty-float system is a(n) _____ system.
managed-float
A floating exchange rate system allows a country to regain control of its _____ policy.
monetary
The international _____ system is responsible for governing exchange rates.
monetary
What type of discipline is inherent in a fixed exchange rate system?
monetary
A(n) _____ exchange rate implies that the value of the currency is fixed relative to a reference currency.
pegged
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
Under the agreement at Bretton Woods, all countries were to fix the value of their currencies in terms of _____.
gold
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 prevents competitive devaluations and brings stability to global trade
The use of currency management instruments such as swaps and the forward market have _______ (increased or decreased?) since 1973.
increased
The institutional arrangements that have reign over exchange rates are referred to as the international _______.
monetary system
An example of a ______ is when banks lend too much money to over-extended companies, expecting bail-out help from their government.
moral hazard
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
Many smaller nations prefer _____ rates because these exchange rates assist in moderating inflationary pressures in these countries.
pegged
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
While it is hard to determine which side is right in the debate over fixed exchange rates and floating exchange rates, it is evident that the fixed exchange rate regime of the Bretton Woods era probably will not work since _____ broke the system originally.
speculation
Governments tying currencies to gold and guaranteeing convertibility to gold is known as the gold _____.
standard
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
Proponents of a fixed exchange system argue that this type of system reduces ________.
uncertainty
Based on the present system, speculative buying and selling of currency tends to create ___________ (stable or volatile?) movements in exchange rates.
volatile
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
Between 1985 and 1988, the U.S. dollar ______ in value relative to major trading currencies.
Decreased
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.
The use of currency management instruments such as swaps and the forward market have ______________ (increased or decreased?) since 1973.
Increased
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
Which institution was established at Bretton Woods to maintain order in the international monetary system?
International Monetary Fund
Which statement is accurate regarding corporate influence on the international monetary system?
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 to allow floating exchange rates.
Jamaica
The unpredictability of exchange rate movements in the post-Bretton Woods era has lead to which two situations?
Made international business planning difficult Added risk to exporting and importing
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.
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
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
The gold standard was embraced by most of the world's major trading countries in the late _____.
1800s
Foreign exchange rates have been more volatile since 1973 due to the many ______ that have occurred in this period.
crises
A(n) _______ board holds reserves of foreign currency equal to the fixed exchange, and commits itself to converting its domestic currency on demand to another currency at a fixed exchange rate.
currency
When a speculative attack on the exchange value of a currency results in a depreciation of that currency, it is called a(n) _____ crisis.
currency
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.
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 _______ system is when a government intervenes in the currency market to limit volatility of its currency exchange rate.
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
Some smaller states in Africa and the Caribbean have no domestic currency. These states rely on which two foreign currencies?
euro US dollar
The IMF was initially established to allow members to borrow short term to adjust their balance-of-payments position and maintain their ______.
exchange rate
True or false: Most economists agree that a fixed exchange rate system is preferable to a floating exchange rate system.
false
A ______ exchange rate discourages competitive devaluations and imposes monetary discipline.
fixed
A currency board would look to _________ (fixed or floating?) exchange rates when converting currency.
fixed
The most common exchange rate regime used today is the _______ arrangement, used by 43% of the nations.
fixed peg
An argument for a(n) ______ exchange rate system is that a country regains control of its money supply.
floating
Monetary policy autonomy and automatic trade balance adjustments are elements that tend to support ______ exchange rates.
floating
The Jamaica agreement was a way to recognize current trends and adjust for _____ exchange rates.
floating
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
When Greece was unable to service its foreign debt in 2010, it was experiencing a _____ crisis.
foreign debt
When a country cannot service its foreign debt obligations in either the private sector or government, it is involved in a _____ crisis.
foreign debt
