Global environment - Chapter 10
Under the Bretton Woods agreement, only the dollar remained convertible to gold at a price of
$35 per ounce
_____ are seen as a mechanism for controlling inflation and imposing economic discipline on countries.
Fixed exchange rates
In 1971, U.S. trade figures showed that for the first time since 1945, the United States was importing more than it was exporting. This set off massive purchases of
German Deutsche Marks
Which of the following is NOT a type of financial crisis that has occurred over the past 30 years?
Gold crisis
_____ experience during the 1997 Asian currency crisis added a new dimension to the debate over how to manage a pegged exchange rate.
Hong Kong's
Which of the following reasons does NOT help explain the rise in the value of the dollar between 1980 and 1985 despite a large trade deficit?
Political stability and peace in other parts of the world
The financial crisis that erupted across _____ during the fall of 1997 has emerged as the biggest challenge the IMF has had to deal with.
Southeast Asia
_____ adds to the uncertainty surrounding future currency movements that characterizes floating exchange rate regimes.
Speculation
According to the text, the Asian meltdown began in mid-1997 in ____ when it became clear that several key financial institutions were on the verge of default.
Thailand
Under which agreement were IMF members permitted to enter the foreign exchange market to even out "unwarranted" speculative fluctuations?
The Jamaica Agreement
Two major features of the International Monetary Fund Articles of Agreement fostered flexibility into the monetary system. These features included (1) IMF lending facilities and (2)
adjustable parities
When a country's exchange rate is allowed to fluctuate against other currencies within a target zone, it is operating under an
adjustable pegged system
Between 1965 and 1968, President Lyndon Johnson backed an increase in U.S. government spending that was financed by:
an increase in the money supply
In some cases, a country's attempts to reduce its money supply growth and correct a persistent _____ could force the country into recession and create high:
balance-of-payments deficit; unemployment
The great strength claimed for the gold standard was that it contained a powerful mechanism for achieving ____ by all countries
balance-of-trading equilibrium
A _____ refers to a situation in which a loss of confidence in the banking system leads to a run on banks, as individuals and companies withdraw their deposits.
banking crisis
A ______ commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate.
currency board
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 reserved and sharply increase interest rates to defend the prevailing exchange rate.
currency crisis
In December 1994, the Mexican government abruptly announced a _____ which exacerbated the sale of the peso and contributed to the rapid 40 percent drop in its value.
currency devaluation
Contrary to the predictions of the purchasing power parity theory, exchange rate movements during the 1980s and 1990s
did not seem to be strongly influenced by relative inflation rates
Some countries try to hold the value of their currency within some range against an important reference currency. This is referred to as a
dirty-float system
The aim of the Bretton Woods agreement was to try to avoid chaos through a combination of
discipline and flexibility
By making export cheaper and imports more expensive, _____ should correct a trade deficit.
exchange rate depreciation
Which of the following did NOT contribute to the Asian crisis of 1997?
expanding exports
The Bretton Woods system called for
fixed exchange rates against the U.S. dollar
When discussion on the Bretton Woods system commenced, there was general consensus that:
fixed exchange rates were desirable
It is argued that a _____ exchange rate regime gives countries monetary policy autonomy.
floating
A _____ occurs when a country cannot service its foreign debt obligations
foreign debt crisis
By 1880, most of the world's major trading nations, including Great Britain, Germany, Japan, and the United States, had adopted the
gold standard
In the 1930s, confidence for the _____ shattered because countries were devaluing their currencies at will.
gold standard
The major problem with the _____ was that no multinational institution could stop countries from engaging in competitive devaluations.
gold standard
The fall in the value of the U.S. dollar between 1985 and 1988 was caused by a combination of
government intervention and market forces
The initial mission of the World Bank was to:
help finance the building of Europe's economy by providing low-interest loans.
In 1997, the currencies of South Korea, Indonesia, Malaysia, Thailand _____ of their value against the U.S. dollar in a few months.
lost between 50 percent and 80 percent
The Mexican currency crisis and the Asian financial crisis were the result of all of the following EXCEPT
low inflation rates
The Bretton Woods system of fixed exchange rates collapses in 1973, and since then we have had a
managed-float system
Under a _____, some currencies are allowed to float freely, but the majority of currencies are either managed in some way by government intervention or pegged to another currency.
managed-float system
In recent history, the value of the dollar has been determined by:
market forces and government intervention
There is some evidence that adopting a pegged exchange rate regime
moderates inflationary pressure in a country
A fixed exchange rate regime imposes discipline in two ways: (1) the need to maintain a fixed exchange rate puts a brake on competitive devaluations and brings stability to the world trade environment and (2) imposes
monetary discipline on countries, thereby curtailing price inflation
The case for floating exchange rates has two main elements. These are:
monetary policy autonomy and automatic trade balance adjustments
The 1995 Plaza Accord, which was sponsored by the financial ministers of the Group of Five major industrial countries, concluded that it would be desirable if
most major currencies appreciated vis-a-vis the U.S. dollar
As the volume of international trade expanded in the wake of the Industrial Revolution, a more convenient means of financing international trade was needed and the solution was to arrange for payment in
paper currency that was converted into gold on demand at a fixed rate
Under the gold standard, the amount of currency needed to purchase one ounce of gold was referred to as the gold _____ value.
par
When the value of a currency is fixed relative to a reference currency, this is referred to as a
pegged exchange rate.
An increase in money supply typically leads to an increase in
price inflation
Critics of the floating exchange rate system argue that when foreign exchange dealers see a currency depreciation, they tend to
sell it regardless of the currency's longer-term prospects
Under a pegged exchange rate regime, a country will peg the value of its currency to
that of a major currency
The Bretton Woods conference created two major international institutions. These are:
the International Monetary Fund and the World Bank
The world's four major trading currencies are all free to float against each other. They include all of the following EXCEPT
the Spanish peso.
Most economists trace the breakup of the fixed exchange rate system to
the U.S. macroeconomic policy package of 1965-1968
In the context of the global money system, in August 1971, President Nixon made the following two announcements (1) a new 10 percent tax on imports would remain in effect until the trading partners of the U.S. agreed to revalue their currency against the dollar and (2):
the dollar was no longer convertible to gold
A system of institutional arrangements that countries adopt to govern exchange rates is called:
the international monetary system.
The Bretton Woods conferences occurred in 1944 and established the basic framework for
the post World War II international monetary system
The gold standard has its origin in
the use of gold coins as a medium of exchange
The IMF Article of Agreement were heavily influence by all of the following except
the worldwide financial boom
Critics of the floating exchange rate system argue that _____ dampens the growth of international trade and investment.
uncertainty
The case for fixed exchange rates rest on argument about monetary discipline, speculation, the lack of connection between the trade balance and exchange rates, and
uncertainty
If local inflation rates remain higher than the inflation rate in the country to which the currency is pegged, the countries with currency boards can become:
uncompetitive
The gold standard was abandoned in
1914
The values of a set of currencies are fixed against each other at some mutually agreed on exchange rate in what type of system?
A fixed exchange rate system
The economic collapse in _____ in 2001 and the subsequent decision to abandon its currency board dampened much of the enthusiasm for this mechanism of managing exchange rates
Argentina
The term fundamental disequilibrium was not defined in the IMF's _____, but it was intended to apply to countries that had suffered permanent adverse shifts in the demand for their products
Articles of Agreement
A building boom in _____ resulted in excess capacity in residential and commercial property. By early 1997, an estimated 365,000 apartment units ere unoccupied in the capital.
Bangkok
Many observers believed that the collapse of _____ 1973 would diminish the role of the IMF within the international monetary system.
Bretton Woods systems
Which of the following is NOT a common IMF mandated-target condition for heavy borrowers from the IMF
Controls on how much can be exported
Which of the following is NOT one of the IMF stipulations imposed on Indonesia after it was offered a $37 billion rescue deal assembled by IMF along with the World Bank and the Asia Development Bank?
Increase public spending
The volume of international trade expanded in the wake of the
Industrial revolution
Under the ______, resources are raised through subscriptions from wealthy member countries, and loans go to the poorest countries. Borrowers have 50 years to repay at an interest rate of 1 percent a year
International Development Association
The task of the _____ was to maintain order in the international monetary system, and that of the _____ was to promote general economic development.
International Monetary Fund; World Bank
In 1987, during the _____, the finance ministers of the Group of Five agreed that exchange rates had been realigned sufficiently and pledged to support the stability of exchange rates around their current levels by intervening in the foreign exchange markets when necessary to buy and sell currency.
Lourve Accord
Which of the following countries does NOT currently operate under the currency board system?
Mexico
_____ requires high interest rates to reduce the demand for money, and to allow an inflow of money from abroad.
Monetary contraction
______ can lead to inflation, which puts downward pressure on fixed exchange rates.
Monetary expansion
When people behave recklessly they know they will be saved if things go wrong, what problem is occurring?
Moral hazard
Which of the following is NOT a common criticism of the IMF?
More beneficial to rich countries than poor countries
Which of the following was NOT one of the main elements of the Jamaica Agreement?
The establishment of the International Monetary Fund
Which of the following is NOT a contributor to the volatility of exchange rates since 1973?
The rapid fall of the Japanese yen against the U.S. dollar between 1985 and 1987.
Which of the following statements does NOT describe the reason for the meeting of representatives from 44 countries in 1944, at the height of World War II, at Bretton Woods?
They met to strengthen their ties and plan for the future course of war
Under the Bretton Woods system, which country served as the base currency?
U.S. dollar
