Question 1

The World Bank was established following World War I to serve as an agent for central banks.

Accepted Answer

A) True 
 B)False  False

Question 2

If the United States pegs the value of the dollar to gold at a parity rate of $35 per ounce, and British officials peg the value of the pound to gold at a rate of £10, then the implied rate of exchange between the dollar and the pound (dollar/pound) is:

Accepted Answer

A)  0.29. 
B)  3.5. 
A)  0.29. 
B)  3.5. B

Question 3

The "trilemma" concept refers to the fact that a nation may simultaneously select a combination of any two, but not all three, of the following:

Accepted Answer

A)  a managed, dirty float for the exchange rate; a non-independent monetary policy; closure of domestic markets to financial capital flows. 
B)  flexible bilateral and cross exchange rates; independent, discretionary foreign exchange market interventions; open, liberalized markets for cross-border trade of merchandise and services. 
C)  fixed bilateral and cross exchange rates; non-independent foreign exchange market interventions; closure of markets to cross-border trade of merchandise and services. 
D)  fixed exchange rates; an independent, discretionary monetary policy; open, liberalized markets for financial capital. 
A)  a managed, dirty float for the exchange rate; a non-independent monetary policy; closure of domestic markets to financial capital flows. 
B)  flexible bilateral and cross exchange rates; independent, discretionary foreign exchange market interventions; open, liberalized markets for cross-border trade of merchandise and services. 
C)  fixed bilateral and cross exchange rates; non-independent foreign exchange market interventions; closure of markets to cross-border trade of merchandise and services. 
D)  fixed exchange rates; an independent, discretionary monetary policy; open, liberalized markets for financial capital. D

Question 4

The trilemma can be visualized using a triangle in which the three sides involve: giving up an independent monetary policy; a floating exchange rate regime; and capital controls that restrain movements of financial capital.

Accepted Answer

A) True 
 B)False

Question 5

When a country "devalues" its currency, the value of the currency is "stronger."

Accepted Answer

A) True 
 B)False

Question 6

An exchange rate regime in which policymakers peg the value of the domestic currency to the currency of another nation and allow the domestic currency to fluctuate around the parity within bands of plus or minus less than 1 percent of parity is called a:

Accepted Answer

A)  pegged with bands system. 
B)  currency basket system. 
C)  conventional peg. 
D)  dirty or managed float. 
A)  pegged with bands system. 
B)  currency basket system. 
C)  conventional peg. 
D)  dirty or managed float.

Question 7

A situation in which policymakers with a pegged exchange rate system change the parity value such that it takes fewer units of the domestic currency to purchase one unit of the foreign currency is called:

Accepted Answer

A)  devaluation. 
B)  revaluation. 
C)  depreciation. 
D)  appreciation. 
A)  devaluation. 
B)  revaluation. 
C)  depreciation. 
D)  appreciation.

Question 8

A currency board supplants a central bank and has fewer responsibilities than a central bank.

Accepted Answer

A) True 
 B)False

Question 9

A currency whose current market value is less than that predicted by an economic theory or model is a(n) ________________ currency.

Accepted Answer

A)  overvalued 
B)  undervalued 
C)  reserve 
D)  vehicle 
A)  overvalued 
B)  undervalued 
C)  reserve 
D)  vehicle

Question 10

The Jamaica Accords rewrote the articles of agreement of the International Monetary Fund, allowing flexible exchange rates.

Accepted Answer

A) True 
 B)False

Question 11

It is better to peg a currency than to let it float in the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 12

The G5 group of nations includes:

Accepted Answer

A)  Belgium, United States, Germany, United Kingdom, Japan. 
B)  France, United States, Germany, United Kingdom, Japan. 
C)  France, United States, Germany, China, Russia. 
D)  China, Brazil, Russia, India, United States, Germany. 
A)  Belgium, United States, Germany, United Kingdom, Japan. 
B)  France, United States, Germany, United Kingdom, Japan. 
C)  France, United States, Germany, China, Russia. 
D)  China, Brazil, Russia, India, United States, Germany.

Question 13

If policymakers of a non-European nation adopt the euro as their sole legal tender, this is called ________________.

Accepted Answer

A)  a euro peg 
B)  a euro standard arrangement 
C)  dollarization 
D)  currency board 
A)  a euro peg 
B)  a euro standard arrangement 
C)  dollarization 
D)  currency board

Question 14

An independent currency authority and a currency board are the same thing.

Accepted Answer

A) True 
 B)False

Question 15

According to the trilemma, as a nation moves toward more open, liberalized capital markets, a stable policy configuration requires that policymakers forego either:

Accepted Answer

A)  an independent monetary policy or floating exchange rates. 
B)  an independent monetary policy or pegged exchange rates. 
C)  sacrificing monetary policy independence or conducting a managed float. 
D)  sacrificing monetary policy independence or conducting a dirty float. 
A)  an independent monetary policy or floating exchange rates. 
B)  an independent monetary policy or pegged exchange rates. 
C)  sacrificing monetary policy independence or conducting a managed float. 
D)  sacrificing monetary policy independence or conducting a dirty float.

Question 16

Actions by U.S. President Richard Nixon were the primary cause of the end of the Bretton Woods system.

Accepted Answer

A) True 
 B)False

Question 17

The "post-Bretton Woods system" of exchange regimes today is best referred to as a flexible exchange rate system.

Accepted Answer

A) True 
 B)False

Question 18

When policymakers peg the domestic currency to a currency basket that includes only two foreign currencies, they have only two exchange rates to focus on.

Accepted Answer

A) True 
 B)False

Question 19

The __________ was a meeting of the G5 nations to announce that the nations would intervene in the foreign exchange market to drive down the value of the dollar.

Accepted Answer

A)  Plaza Agreement 
B)  Louvre Accord 
C)  Jamaica Accord 
D)  1975 Economic Summit 
A)  Plaza Agreement 
B)  Louvre Accord 
C)  Jamaica Accord 
D)  1975 Economic Summit

Question 20

An exchange rate regime in which policymakers allow the value of the domestic currency to be determined only by market forces is called a:

Accepted Answer

A)  pegged with bands system. 
B)  currency basket system. 
C)  float. 
D)  dirty or managed float. 
A)  pegged with bands system. 
B)  currency basket system. 
C)  float. 
D)  dirty or managed float.

The World Bank was established following World War I to serve as an agent for central banks.

If the United States pegs the value of the dollar to gold at a parity rate of $35 per ounce, and British officials peg the value of the pound to gold at a rate of £10, then the implied rate of exchange between the dollar and the pound (dollar/pound) is:

The "trilemma" concept refers to the fact that a nation may simultaneously select a combination of any two, but not all three, of the following:

The trilemma can be visualized using a triangle in which the three sides involve: giving up an independent monetary policy; a floating exchange rate regime; and capital controls that restrain movements of financial capital.

When a country "devalues" its currency, the value of the currency is "stronger."

An exchange rate regime in which policymakers peg the value of the domestic currency to the currency of another nation and allow the domestic currency to fluctuate around the parity within bands of plus or minus less than 1 percent of parity is called a:

A situation in which policymakers with a pegged exchange rate system change the parity value such that it takes fewer units of the domestic currency to purchase one unit of the foreign currency is called:

A currency board supplants a central bank and has fewer responsibilities than a central bank.

A currency whose current market value is less than that predicted by an economic theory or model is a(n) ________________ currency.

The Jamaica Accords rewrote the articles of agreement of the International Monetary Fund, allowing flexible exchange rates.

It is better to peg a currency than to let it float in the foreign exchange market.

The G5 group of nations includes:

If policymakers of a non-European nation adopt the euro as their sole legal tender, this is called ________________.

An independent currency authority and a currency board are the same thing.

According to the trilemma, as a nation moves toward more open, liberalized capital markets, a stable policy configuration requires that policymakers forego either:

Actions by U.S. President Richard Nixon were the primary cause of the end of the Bretton Woods system.

The "post-Bretton Woods system" of exchange regimes today is best referred to as a flexible exchange rate system.

When policymakers peg the domestic currency to a currency basket that includes only two foreign currencies, they have only two exchange rates to focus on.

The __________ was a meeting of the G5 nations to announce that the nations would intervene in the foreign exchange market to drive down the value of the dollar.

An exchange rate regime in which policymakers allow the value of the domestic currency to be determined only by market forces is called a:

Understanding the Global Economy

Comparative Advantage: How Nations Can Gain From International Trade

Sources of Comparative Advantage

Regulating International Trade: Trade Policies and Their Effects

Regionalism and Multilateralism

Balance of Payments and Foreign Exchange Markets

The Power of Arbitrage: Purchasing Power and Interest Rate Parities

Global Money and Banking: Where Central Banks Fit Into the World Economy

Contemporary Global Economic Issues and Policies

Economic Development

Industrial Structure and Trade in the Global Economy: Businesses Without Borders

The Public Sector in the Global Economy

Dealing With Financial Crises: Does the World Need a New International Financial Architecture

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Exam 7: Exchange Rate Systems: Past to Present

The World Bank was established following World War I to serve as an agent for central banks.

If the United States pegs the value of the dollar to gold at a parity rate of $35 per ounce, and British officials peg the value of the pound to gold at a rate of £10, then the implied rate of exchange between the dollar and the pound (dollar/pound) is:

The "trilemma" concept refers to the fact that a nation may simultaneously select a combination of any two, but not all three, of the following:

The trilemma can be visualized using a triangle in which the three sides involve: giving up an independent monetary policy; a floating exchange rate regime; and capital controls that restrain movements of financial capital.

When a country "devalues" its currency, the value of the currency is "stronger."

An exchange rate regime in which policymakers peg the value of the domestic currency to the currency of another nation and allow the domestic currency to fluctuate around the parity within bands of plus or minus less than 1 percent of parity is called a:

A situation in which policymakers with a pegged exchange rate system change the parity value such that it takes fewer units of the domestic currency to purchase one unit of the foreign currency is called:

A currency board supplants a central bank and has fewer responsibilities than a central bank.

A currency whose current market value is less than that predicted by an economic theory or model is a(n) ________________ currency.

The Jamaica Accords rewrote the articles of agreement of the International Monetary Fund, allowing flexible exchange rates.

It is better to peg a currency than to let it float in the foreign exchange market.

The G5 group of nations includes:

If policymakers of a non-European nation adopt the euro as their sole legal tender, this is called ________________.

An independent currency authority and a currency board are the same thing.

According to the trilemma, as a nation moves toward more open, liberalized capital markets, a stable policy configuration requires that policymakers forego either:

Actions by U.S. President Richard Nixon were the primary cause of the end of the Bretton Woods system.

The "post-Bretton Woods system" of exchange regimes today is best referred to as a flexible exchange rate system.

When policymakers peg the domestic currency to a currency basket that includes only two foreign currencies, they have only two exchange rates to focus on.

The __________ was a meeting of the G5 nations to announce that the nations would intervene in the foreign exchange market to drive down the value of the dollar.

An exchange rate regime in which policymakers allow the value of the domestic currency to be determined only by market forces is called a:

Understanding the Global Economy

Comparative Advantage: How Nations Can Gain From International Trade

Sources of Comparative Advantage

Regulating International Trade: Trade Policies and Their Effects

Regionalism and Multilateralism

Balance of Payments and Foreign Exchange Markets

The Power of Arbitrage: Purchasing Power and Interest Rate Parities

Global Money and Banking: Where Central Banks Fit Into the World Economy

Contemporary Global Economic Issues and Policies

Economic Development

Industrial Structure and Trade in the Global Economy: Businesses Without Borders

The Public Sector in the Global Economy

Dealing With Financial Crises: Does the World Need a New International Financial Architecture

Filters