Exam 11: The International Monetary and Financial Environment

Which of the following is the most likely underlying reason for the demise of the Bretton Woods system?

Capital flight from a country enhances its ability to service debt and pay for imports.

In most high-inflation nations, interest rates are increasing while the purchasing power of the national currency is plummeting.

The monetary authority in each country that regulates the money supply, issues currency, and manages the exchange rate of the nation's currency relative to other currencies is called the World Bank.

High Inflation (Scenario) Country X primarily exports coffee beans, and in the last two years the demand for coffee beans has caused economic growth in Country X. To accommodate the economic growth, the central bank of Country X increased the nation's money supply. Country X is now experiencing inflation of over 200 percent. A group of economic experts, government representatives, and business owners have gathered for a conference in Country X to discuss the situation. -Which of the following is most likely an additional problem faced by Country X due to its inflation?

If an individual buys from a supplier whose currency is depreciating against the individual's currency, the individual will have to pay a larger amount of his own currency to complete the purchase.

The foreign-exchange market is located exclusively in the United States.

Which of the following best describes the role that the international monetary system plays with foreign firms?

A French company sells goods to a foreign customer whose currency is depreciating against the euro. Which of the following will the company most likely experience when completing the sale?

The integration of international financial and monetary activity can be attributed to the growing role of single-currency systems, such as the euro.

The official price of gold is used to determine the value of all major currencies in the exchange rate system used for international trade today.

Each of the following factors significantly affects the balance of trade EXCEPT ________.

The purpose of the Bretton Woods Agreement was to ________.

Describe four principles or organizations brought about by the Bretton Woods Agreement that remain important to international business and trade today. Why does the integration of financial and monetary activity worldwide continue to grow?

The Bretton Woods Agreement was brought into existence in the late 1960s when the U.S. needed to finance government programs and the Vietnam War.

Plas-Tex Exporting (Scenario) Plas-Tex Plastic Company manufactures plastic storage containers of all different sizes. Plas-Tex has been exporting more storage containers to Europe recently because of the depreciation of the U.S. dollar relative to the euro. Plas-Tex CEO, Wayne Chisholm, has prepared a report for the annual shareholders meeting in which he outlines his manufacturing and sales recommendations for the upcoming year. -Which of the following should be considered closely before Chisholm recommends increasing production to take advantage of the current exchange rate?

Which of the following situations often results in a banking crisis?

Global Finance Meeting (Scenario) International finance experts are meeting in Tokyo for a weeklong conference to discuss the current state of global finance. At the conference are representatives from a variety of monetary and financial organizations. Expert A often works with international firms arranging capital in the form of shares. Expert B works for the Bank of Nova Scotia in the British Virgin Islands. Expert C advises international firms on corporate mergers. -The employer of Expert B can most likely be categorized as which of the following?

In a short essay, describe the underlying reasons for inflation. Provide an example of a nation that faced a high rate of inflation.

All else being equal, the greater the demand for a currency, the lower its price; the lower the demand for a currency, the higher its price.