ibus330 Ch11
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) Blank______ system.
dirty float
A Blank______ 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 Blank______ while the floating exchange rate system supports the monetary Blank______ argument.
discipline; autonomy
Most pegged exchange rates are tied to the Blank______.
dollar
In 2000, Ecuador abandoned its own currency as the result of the hyperinflation taking place in that country. The country turned to using US currency instead. This is an example of Blank______.
dollarization
What are the three main elements supporting a floating exchange rate system?
economic recovery following a crisis automatic trade balance adjustments monetary policy autonomy
When the current account of a country's balance of payments is in balance it is called the balance-of-trade Blank______.
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 Blank______.
exchange rate
In recent years, the IMF's activities have Blank______.
expanded
A Blank______ exchange rate discourages competitive devaluations and imposes monetary discipline.
fixed
A Blank______ 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
A currency board would look to (fixed or floating?) exchange rates when converting currency.
fixed
The European Monetary System relied on a Blank______ exchange rate system prior to the introduction of the euro.
fixed
When the values of a set of currencies are set against each other at some mutually-agreed on exchange rate, a exchange rate exists.
fixed
The most common exchange rate regime used today is the Blank______ arrangement, used by 43% of the nations.
fixed peg
A Blank______ system reduces speculation because investors cannot profit from changes in the exchange rate.
fixed rate
IMF lending facilities and adjustable parities added Blank______ to the IMF Articles of Agreement.
flexibility
A (fixed or floating?) exchange rate is advocated as having the ability to help a country out of an economic crisis.
floating
An argument for a(n) Blank______ exchange rate system is that a country regains control of its money supply.
floating
It has been argued that a Blank______ exchange rate system can help a country deal with economic crises.
floating
Monetary policy autonomy and automatic trade balance adjustments are elements that tend to support Blank______ exchange rates.
floating
The Jamaica agreement was a way to recognize current trends and adjust for Blank______ exchange rates.
floating
When the foreign exchange market determines the relative value of a currency in a country, that country is using a(n) Blank______ exchange rate regime.
floating
In the 1990s, one of the reasons for the appreciation of the U.S dollar was Blank______.
foreign investment in U.S, stocks and bonds, which drove up the value of the dollar on the foreign exchange
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
In an effort to get all countries to simultaneously revalue against the dollar, President Nixon announced in 1971 that the dollar was no longer convertible into Blank______.
gold
Under the agreement at Bretton Woods, all countries were to fix the value of their currencies in terms of Blank______.
gold
An advantage of the Blank______ was that it was thought to have a direct correlation with a balance-of-trade equilibrium by all countries.
gold standard
A dirty float results when Blank______ intervention is used to maintain the value of a currency.
government
What would be a typical situation that might cause a country to consider dollarization?
high inflation rates
The start of the demise of the fixed exchange rate system was notable in 1971 when the US was Blank______ more than Blank______.
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
When responding to the global financial crisis in April 2009, major IMF members agreed to Blank______ the IMF's resources.
increase
As the text explains, if Great Britain (under a fixed exchange rate regime) rapidly increased its money supply by printing pounds, then this increase in the money supply would lead to price Blank______.
inflation
The Bretton Woods system could only work as long as the US Blank______.
inflation rate remained low
From 2001-2002 there was a slowdown in US economic activity which meant that the dollar became Blank______ attractive.
less
The IMF lends money to nations experiencing financial crisis in return for Blank______.
macroeconomic policy implementation
Another name for a dirty-float system is a(n) Blank______ system.
managed-float
A floating exchange rate system allows a country to regain control of its Blank______ policy.
monetary
The international Blank______ 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 Blank______.
monetary system
In 1971, many countries did not want to simultaneously revalue compared to the dollar because it would make their products Blank______ compared to US products.
more expensive
The amount of currency needed to purchase one ounce of gold was called the gold Blank______.
par value
A(n) Blank______ exchange rate implies that the value of the currency is fixed relative to a reference currency.
pegged
Many smaller nations prefer Blank______ rates because these exchange rates assist in moderating inflationary pressures in these countries.
pegged
Smaller nations prefer pegged rates because these exchange rates Blank______.
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 Blank______.
quadrupled
There are opposing views about the use of currency to adjust trade balances. The group that argues that the external value of currency has no affect on the trade balance believes that the balance between Blank______ in a country determines the trade deficit.
savings and investment
Advocates of a fixed exchange rate contend that a fixed system will limit the destabilizing effects of Blank______.
speculation
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 Blank______ broke the system originally.
speculation
Governments tying currencies to gold and guaranteeing convertibility to gold is known as the gold Blank______.
standard
The Louvre Accord resulted in an agreement that Blank______.
supported the stability of exchange rates around their current level
A country is in a balance-of-trade equilibrium when Blank______.
the income residents earn from exports equals the money its residents pay to other countries for imports
The gold standard was embraced by most of the world's major trading countries in the late Blank______.
1800s
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 Blank______.
2.50
Which statement regarding the gold standard is accurate?
By the start of World War II, the gold standard was no longer of value.
True or False: Under the Jamaica Agreement, gold was once again reintroduced as a reserve asset.
False
True or false: Most economists agree that a fixed exchange rate system is preferable to a floating exchange rate system.
False
True or false: The IMF no longer has the financial leverage to act aggressively in times of global financial crisis.
False
True or false: The fixed exchange rate system is still in use in the European Union.
False
Which activity 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.
What three countries experienced a foreign debt crisis in 2010?
Portugal Ireland Greece
What was the purpose of the Marshall Plan?
The United States lent money directly to European nations to help them rebuild after the war.
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. What was the result?
The dollar was worth less.
Why was the Louvre Accord assembled?
The governments of the Group of Five were concerned the dollar would continue to decline.
True or false: The fixed exchange rate is considered a mechanism for controlling inflation and imposing economic discipline on countries.
True
True or false: Those in favor of floating exchange rates argue that floating rates help adjust trade imbalances and can assist with economic recovery.
True
True or false: Under the currency board in place in Hong Kong, the government is limited in its ability to print money.
True
True or false: When countries began to devalue their currencies at will, confidence in the gold standard lessened.
True
What two variables were necessary for the Bretton Woods system to work?
US could not run a balance-of-payments deficit. US inflation needed to remain low.
The fixed rate exchange system established at Bretton Woods eventually collapsed. This collapse is attributed to the role of the Blank______ in the system.
US dollar
Under the currency board system used in Hong Kong, the country's currency must be fully backed by the Blank______ at the specified exchange rate.
US dollar
What are three reasons why the dollar became less attractive to foreign investments by 2002?
US slowdown in economic activity US government officials "talking down" the dollar US budget deficits increased
Starting in the 1950s, the Blank______ concentrated on lending money for public sector projects in third-world countries.
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
In the late 1990s, the dollar Blank______ against most major currencies.
appreciated
The biggest advantage of the the gold standard was that it provided a powerful way to achieve Blank______ equilibrium for all countries.
balance-of-trade
A Blank______ 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
Under the IBRD scheme of lending money by the World Bank, money is raised through the sale of Blank______.
bonds
Since the 1970s, developed countries like Great Britain and the US have tended to finance their deficits by Blank______.
borrowing private money
The US dollar and the Japanese yen are free to float against each other. This means that their exchange rates Blank______ fluctuate.
constantly
Foreign exchange rates have been more volatile since 1973 due to the many Blank______ that have occurred in this period.
crises
A(n) Blank______ 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
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) Blank______ in the value of the dollar.
decrease
Between 1985 and 1988, the U.S. dollar Blank______ in value relative to major trading currencies.
decreased
If a country is running a trade deficit, in a floating exchange rate system the exchange rate can Blank______, making its exports cheaper and imports more expensive, which should correct the trade deficit.
depreciate
During a currency crisis, the value of a country's currency Blank______.
depreciates
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 Blank______.
depression
IDA loans provided by the World Bank are only available to Blank______.
the poorest countries
Proponents of a fixed exchange system argue that this type of system reduces Blank______.
uncertainty
Foreign exchange rates have been very Blank______ 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
As a result of the Bretton Woods system, if a country developed a permanent deficit in balance of trade that could not be corrected by domestic policy, who could step in to agree to currency devaluation?
IMF
Which institution was established at Bretton Woods to maintain order in the international monetary system?
International Monetary Fund
Which two features of the IMF Articles of Agreement fostered flexibility in the Bretton Woods agreement?
Lending facilities Adjustable parities
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 was the initiative called in which the United States lent money directly to countries in Europe to rebuild after World War II?
Marshall Plan
