Exam 30: The International Financial System

If the GDP deflator in the United States is 114, and the GDP deflator in Ukraine is 142, which of the following exchange rates would the theory of purchasing power parity predict in the long run? (The Ukrainian currency is the hryvnia.)

Suppose an economy's exchange rate system is the gold standard and vast tracks of gold are discovered, as is what happened in the United States in 1849. If the economy is at full employment, what should this discovery do?

What is the difference between a fixed exchange rate system and a managed float exchange rate system?

An increase in the value of the U.S. dollar will

The "Big Mac Theory of Exchange Rates" tests the accuracy of the purchasing power parity theory. In January 2017, the Economist reported that the average price of a Big Mac in the U.S. was $4.93. In Sweden, the average price of a Big Mac at that time was 48 kronor. What is the "implied exchange rate" between Swedish kronor and U.S. dollars?

Under the Bretton Woods system, U.S. dollars were redeemable for ________ only if the dollars were presented by a foreign central bank.

U.S. currency continues to be backed by the gold standard to this day.

Under the Bretton Woods exchange rate system, the U.S. government agreed to buy or sell gold at a fixed price of ________ per ounce.

By the end of 2017, ________ members of the European Union were using the euro as their currency.

Will the use of the euro help increase economic growth in countries in the European Union? Will it help individual countries using the euro in times of recession? Explain.

Which of the following would decrease the value of the dollar in the long run?

The current exchange rate system is a managed float exchange rate system.

You decide to work in Japan for the next 10 years, accumulate some savings, then move back to the United States and convert your savings from yen to dollars. At the time of your move, economists predict that consumers in the United States have reignited their love of Japanese products, especially hybrid cars, and expect that this strong preference for Japanese products will continue for the next decade. How should this influence your decision to work and save in Japan?

A Big Mac costs $4.93 in the United States and 9.6 zlotys in Poland. If the exchange rate is 3 zlotys per dollar, what is the dollar cost of a Big Mac in Poland?

Pegging a country's exchange rate to the dollar can be advantageous in all of the following situations except

Explain why international capital markets have expanded since the 1980s.

The ________ system of currency exchange rates was set up in 1944.

A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil. If the exchange rate is 2 reals per dollar, purchasing power parity predicts that

An easy way to determine if a currency is undervalued at a point in time is to use the model of purchasing power parity.

The Danish currency, the krone, is pegged to the euro at a rate of 7.46 kroner (kroner is the plural of krone) to the euro. At the pegged exchange rate, how many euros would be exchanged for one krone?