Exam 2: The International Monetary System

Since the launch of the euro in January of 1999, one nation has joined the original 11 members and three nations have dropped the euro as their official currency.

The IMFs exchange rate regime classification identifies ________ as the most rigidly fixed, and ________ as the least fixed.

A special Drawing Right is a unit of account established by

Another name for the International Bank for Reconstruction and Development is

All exchange rate regimes must deal with the trade-off between cooperation and independence.

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

On September 9, 2000 Ecuador officially replaced its national currency, the Ecuadorian sucre, with the U.S. dollar. This practice is known as

European Central Bank (ECB) is

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.

All exchange rate regimes must deal with the trade-off between rules and discretion.

American college students on the USA-Canadian border have discovered they can buy Canadian beer for less money than what they pay in the states. Recently Jerry paid C$5.50 for a six-pack of beer while he was in Canada while his roommate, Ben, paid $5.75 for a six-pack of the same beer in the states. If the current exchange rate is $1.0335/C$, who paid less and why?

Under a fixed exchange rate regime, the government of the country is officially responsible for

The International Monetary Fund (IMF)

What was the annualized forward premium on the pound if the spot rate on May 6, 2011 was £0.6102/$ and the 180 day forward rate was £0.5836/$?

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?

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. Occasionally 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.

According to the authors, what is the single most important mandate of the European Central Bank?

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

On January 4, 1999 the member nations of the EMU introduced a new unified currency, the euro, to replace the individual national currencies of many member nations. Identify and explain several of the arguments made both for and against the euro. Do you think the euro has proven to be a "good" idea? Why/Why not?

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?