Question 1

If exchange rates were fixed, investors and traders would be relatively certain about the current and near future exchange value of each currency.

Accepted Answer

A) True 
 B)False  True

Question 2

List and explain the three attributes (often referred as the impossible trinity) an ideal currency would possess if existed in today's world.

Accepted Answer

If the ideal currency existed in today's world, it would possess the following three attributes, often referred to as the impossible trinity: 
1) Exchange rate stability: the value of the currency is fixed (and relatively certain) in relationship to other major currencies. 
2) Full financial integration: complete freedom of monetary flows would be allowed. 
3) Monetary independence: domestic monetary and interest rate policies would be set by each individual country to pursue desired national economic policies. These qualities are termed the impossible trinity because the forces of economics do not allow a country to simultaneously achieve all three goals.

Question 3

Regime structures like the gold standard required no cooperative policies among countries, only the assurance that all would abide by the "rules of the game."

Accepted Answer

A) True 
 B)False  True

Question 4

According to the terminology associated with changes in currency values, which of the following choices is the case when a currency's value relative to other currencies is changed by a government?

Accepted Answer

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

Question 5

Most Western nations were on the gold standard for currency exchange rates from 1876 until 1914. Today we have several different exchange rate regimes in use, but most larger economy nations have freely floating exchange rates today and are not obligated to convert their currency into a predetermined amount of gold on demand. Currently several parties still call for the "good old days" and a return to the gold standard. Develop an argument as to why this is a good idea.

Accepted Answer

The gold standard forces a nation to mai

Question 6

You have been hired as a consultant to the central bank for a country that has for many years suffered from repeated currency crises and depends heavily on the U.S. financial and product markets. Which of the following policies would have the greatest effectiveness for reducing currency volatility of the client country with the United States?

Accepted Answer

A)  dollarization 
B)  an exchange rate pegged to the U.S. dollar 
C)  an exchange rate with a fixed price per ounce of gold 
D)  an internationally floating exchange rate 
A)  dollarization 
B)  an exchange rate pegged to the U.S. dollar 
C)  an exchange rate with a fixed price per ounce of gold 
D)  an internationally floating exchange rate

Question 7

Based on the premise that, other things equal, countries would prefer a fixed exchange rate: Variable rates provide stability in international prices for the conduct of trade.

Accepted Answer

A) True 
 B)False

Question 8

Since 2009 the IMF's exchange rate regime classification system uses a "de facto classification" methodology. Under this system, a country that has given up their own sovereignty over monetary policy is considered to have:

Accepted Answer

A)  a residual agreement. 
B)  hard pegs. 
C)  soft pegs. 
D)  floating arrangements. 
A)  a residual agreement. 
B)  hard pegs. 
C)  soft pegs. 
D)  floating arrangements.

Question 9

Beginning in 1991, Argentina conducted its monetary policy through a currency board. In January 2002, Argentina abandoned the currency board and allowed its currency to float against other currencies. The country took this step because:

Accepted Answer

A)  the Argentine Peso had grown too strong against major trading powers thus the currency board policies were hurting the domestic economy. 
B)  the United States required the action as a prerequisite to finalizing a free trade zone with all of North, South, and Central America. 
C)  the Argentine government lost the ability to maintain the pegged relationship as in fact investors and traders perceived a lack of equality between the Argentine Peso and the U.S. dollar. 
D)  all of the above 
A)  the Argentine Peso had grown too strong against major trading powers thus the currency board policies were hurting the domestic economy. 
B)  the United States required the action as a prerequisite to finalizing a free trade zone with all of North, South, and Central America. 
C)  the Argentine government lost the ability to maintain the pegged relationship as in fact investors and traders perceived a lack of equality between the Argentine Peso and the U.S. dollar. 
D)  all of the above

Question 10

In January 2002, the Argentine Peso changed in value from Peso1.00/$ to Peso1.40/$; thus, the Argentine Peso ________ against the U.S. dollar.

Accepted Answer

A)  strengthened 
B)  weakened 
C)  remained neutral 
D)  all of the above 
A)  strengthened 
B)  weakened 
C)  remained neutral 
D)  all of the above

Question 11

Another name for the International Bank for Reconstruction and Development is:

Accepted Answer

A)  the Recon Bank. 
B)  the European Monetary System. 
C)  the Marshall Plan. 
D)  the World Bank. 
A)  the Recon Bank. 
B)  the European Monetary System. 
C)  the Marshall Plan. 
D)  the World Bank.

Question 12

The authors discuss the concept of the "Impossible Trinity" or the inability to achieve simultaneously the goals of exchange rate stability, full financial integration, and monetary independence. If a country chooses to have a pure float exchange rate regime, which two of the three goals is a country most able to achieve?

Accepted Answer

A)  monetary independence and exchange rate stability 
B)  exchange rate stability and full financial integration 
C)  full financial integration and monetary independence 
D)  A country cannot attain any of the exchange rate goals with a pure float exchange rate regime. 
A)  monetary independence and exchange rate stability 
B)  exchange rate stability and full financial integration 
C)  full financial integration and monetary independence 
D)  A country cannot attain any of the exchange rate goals with a pure float exchange rate regime.

Question 13

The mobility of international capital flows is causing emerging market nations to choose between a free-floating currency exchange regime and a currency board (or taken to the limit, dollarization). Describe how each of the regimes would work and identify at least two likely economic results for each regime.

Accepted Answer

With free float the exchange rate is mar

Question 14

The European Central Bank is a strong and independent central bank that has completely replaced the individual central banks of the countries that use the euro as their currency.

Accepted Answer

A) True 
 B)False

Question 15

One of the innovations introduced by Bretton Woods was the creation of the Special Drawing Right or SDR. The SDR is an international reserve asset created by the:

Accepted Answer

A)  U.S. Department of the Treasury. 
B)  International Bank of Reconstruction and Development (IBR
D) . 
C)  World Bank (W
B) . 
D)  International Monetary Fund (IMF). 
A)  U.S. Department of the Treasury. 
B)  International Bank of Reconstruction and Development (IBR
D) . 
C)  World Bank (W
B) . 
D)  International Monetary Fund (IMF).

Question 16

World War I caused the suspension of the gold standard for fixed international exchange rates because the war:

Accepted Answer

A)  cost too much money. 
B)  interrupted the free movement of gold. 
C)  lasted too long. 
D)  used gold as the main ingredient in armament plating. 
A)  cost too much money. 
B)  interrupted the free movement of gold. 
C)  lasted too long. 
D)  used gold as the main ingredient in armament plating.

Question 17

A currency board exists when a country's central bank commits to back a fraction of its money base with foreign reserves at all times.

Accepted Answer

A) True 
 B)False

Question 18

By and large, high capital mobility is forcing emerging market nations to choose between the two extremes of a free-floating exchange rate or a hard peg regime.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is NOT an argument against dollarization?

Accepted Answer

A)  Dollarization causes a loss of sovereignty over domestic monetary policy. 
B)  Dollarization removes currency volatility against the dollar. 
C)  Dollarization causes the country to lose the power of seigniorage. 
D)  The central bank of the dollarized country loses the role of lender of last resort. 
A)  Dollarization causes a loss of sovereignty over domestic monetary policy. 
B)  Dollarization removes currency volatility against the dollar. 
C)  Dollarization causes the country to lose the power of seigniorage. 
D)  The central bank of the dollarized country loses the role of lender of last resort.

Question 20

The People's Republic of China has two official currencies, the Chinese renminbi (RMB) and the yuan (CNY).

Accepted Answer

A) True 
 B)False

If exchange rates were fixed, investors and traders would be relatively certain about the current and near future exchange value of each currency.

List and explain the three attributes (often referred as the impossible trinity) an ideal currency would possess if existed in today's world.

Regime structures like the gold standard required no cooperative policies among countries, only the assurance that all would abide by the "rules of the game."

According to the terminology associated with changes in currency values, which of the following choices is the case when a currency's value relative to other currencies is changed by a government?

Based on the premise that, other things equal, countries would prefer a fixed exchange rate: Variable rates provide stability in international prices for the conduct of trade.

Since 2009 the IMF's exchange rate regime classification system uses a "de facto classification" methodology. Under this system, a country that has given up their own sovereignty over monetary policy is considered to have:

Beginning in 1991, Argentina conducted its monetary policy through a currency board. In January 2002, Argentina abandoned the currency board and allowed its currency to float against other currencies. The country took this step because:

In January 2002, the Argentine Peso changed in value from Peso1.00/$ to Peso1.40/$; thus, the Argentine Peso ________ against the U.S. dollar.

Another name for the International Bank for Reconstruction and Development is:

The European Central Bank is a strong and independent central bank that has completely replaced the individual central banks of the countries that use the euro as their currency.

One of the innovations introduced by Bretton Woods was the creation of the Special Drawing Right or SDR. The SDR is an international reserve asset created by the:

World War I caused the suspension of the gold standard for fixed international exchange rates because the war:

A currency board exists when a country's central bank commits to back a fraction of its money base with foreign reserves at all times.

By and large, high capital mobility is forcing emerging market nations to choose between the two extremes of a free-floating exchange rate or a hard peg regime.

Which of the following is NOT an argument against dollarization?

The People's Republic of China has two official currencies, the Chinese renminbi (RMB) and the yuan (CNY).

Multinational Financial Management: Opportunities and Challenges

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives: Futures and Options

Interest Risk and Swaps

Foreign Exchange Rate Determination and Intervention

Transaction Exposure

Translation Exposure

Operating Exposure

Global Cost and Availability of Capital

Funding the Multinational Firm

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

Exam 2: The International Monetary System

If exchange rates were fixed, investors and traders would be relatively certain about the current and near future exchange value of each currency.

List and explain the three attributes (often referred as the impossible trinity) an ideal currency would possess if existed in today's world.

Regime structures like the gold standard required no cooperative policies among countries, only the assurance that all would abide by the "rules of the game."

According to the terminology associated with changes in currency values, which of the following choices is the case when a currency's value relative to other currencies is changed by a government?

Based on the premise that, other things equal, countries would prefer a fixed exchange rate: Variable rates provide stability in international prices for the conduct of trade.

Since 2009 the IMF's exchange rate regime classification system uses a "de facto classification" methodology. Under this system, a country that has given up their own sovereignty over monetary policy is considered to have:

Beginning in 1991, Argentina conducted its monetary policy through a currency board. In January 2002, Argentina abandoned the currency board and allowed its currency to float against other currencies. The country took this step because:

In January 2002, the Argentine Peso changed in value from Peso1.00/$ to Peso1.40/$; thus, the Argentine Peso ________ against the U.S. dollar.

Another name for the International Bank for Reconstruction and Development is:

The European Central Bank is a strong and independent central bank that has completely replaced the individual central banks of the countries that use the euro as their currency.

One of the innovations introduced by Bretton Woods was the creation of the Special Drawing Right or SDR. The SDR is an international reserve asset created by the:

World War I caused the suspension of the gold standard for fixed international exchange rates because the war:

A currency board exists when a country's central bank commits to back a fraction of its money base with foreign reserves at all times.

By and large, high capital mobility is forcing emerging market nations to choose between the two extremes of a free-floating exchange rate or a hard peg regime.

Which of the following is NOT an argument against dollarization?

The People's Republic of China has two official currencies, the Chinese renminbi (RMB) and the yuan (CNY).

Multinational Financial Management: Opportunities and Challenges

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives: Futures and Options

Interest Risk and Swaps

Foreign Exchange Rate Determination and Intervention

Transaction Exposure

Translation Exposure

Operating Exposure

Global Cost and Availability of Capital

Funding the Multinational Firm

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters