Question 1

The single European currency,the euro,was adopted by 11 member nations on January 1 of what year?

Accepted Answer

A) 1984 
B) 1991 
C) 1999 
D) 2001 
A) 1984 
B) 1991 
C) 1999 
D) 2001

Question 2

Suppose that the pound is pegged to gold at £20 per ounce and the dollar is pegged to gold at $35 per ounce.This implies an exchange rate of $1.75 per pound.If the current market exchange rate is $1.80 per pound,how would you take advantage of this situation? Hint: assume that you have $350 available for investment.

Accepted Answer

A) Start with $350.Buy 10 ounces of gold with dollars at $35 per ounce.Convert the gold to £200 at £20 per ounce.Exchange the £200 for dollars at the current rate of $1.80 per pound to get $360. 
B) Start with $350.Exchange the dollars for pounds at the current rate of $1.80 per pound.Buy gold with pounds at £20 per ounce.Convert the gold to dollars at $35 per ounce. 
C) a and b both work 
D) None of the above 
A) Start with $350.Buy 10 ounces of gold with dollars at $35 per ounce.Convert the gold to £200 at £20 per ounce.Exchange the £200 for dollars at the current rate of $1.80 per pound to get $360. 
B) Start with $350.Exchange the dollars for pounds at the current rate of $1.80 per pound.Buy gold with pounds at £20 per ounce.Convert the gold to dollars at $35 per ounce. 
C) a and b both work 
D) None of the above

Question 3

With regard to the current exchange rate arrangement between Italy and Germany,it is best characterized as

Accepted Answer

A) independent floating (market determined). 
B) managed float. 
C) an exchange arrangement with no separate legal tender. 
D) pegged exchange rate within a horizontal band. 
A) independent floating (market determined). 
B) managed float. 
C) an exchange arrangement with no separate legal tender. 
D) pegged exchange rate within a horizontal band.

Question 4

Consider the supply-demand framework for the British pound relative to the U.S.dollar shown in the nearby chart.The exchange rate is currently $1.80 = £1.00.Which of the following is correct?

Accepted Answer

A) At an exchange rate of $1.80 = £1.00, demand for British pounds exceeds supply. 
B) At an exchange rate of $1.80 = £1.00, supply for British pounds exceeds demand. 
C) Under a flexible exchange rate regime, the U.S.dollar will depreciate to an exchange rate of $1.90 = £1.00. 
D) a and c are correct 
A) At an exchange rate of $1.80 = £1.00, demand for British pounds exceeds supply. 
B) At an exchange rate of $1.80 = £1.00, supply for British pounds exceeds demand. 
C) Under a flexible exchange rate regime, the U.S.dollar will depreciate to an exchange rate of $1.90 = £1.00. 
D) a and c are correct

Question 5

The majority of countries got off gold in 1914 when

Accepted Answer

A) the American Civil War ended. 
B) World War I broke out. 
C) World War II started. 
D) none of the above 
A) the American Civil War ended. 
B) World War I broke out. 
C) World War II started. 
D) none of the above

Question 6

Special Drawing Rights (SDR)are

Accepted Answer

A) an artificial international reserve allotted to the members of the International Monetary Fund (IMF), who can then use it for transactions among themselves or with the IMF. 
B) a "portfolio" of currencies, and its value tends to be more stable than the currencies that it is comprised of. 
C) used in addition to gold and foreign exchanges, to make international payments. 
D) all of the above 
A) an artificial international reserve allotted to the members of the International Monetary Fund (IMF), who can then use it for transactions among themselves or with the IMF. 
B) a "portfolio" of currencies, and its value tends to be more stable than the currencies that it is comprised of. 
C) used in addition to gold and foreign exchanges, to make international payments. 
D) all of the above

Question 7

During the period of the classical gold standard (1875-1914)there were

Accepted Answer

A) highly volatile exchange rates. 
B) volatile exchange rates. 
C) moderately volatile exchange rates. 
D) stable exchange rates. 
E) no exchange rates. 
A) highly volatile exchange rates. 
B) volatile exchange rates. 
C) moderately volatile exchange rates. 
D) stable exchange rates. 
E) no exchange rates.

Question 8

The growth of the Eurodollar market,which is a transnational,unregulated fund market

Accepted Answer

A) was encouraged by U.S.legislation designed to stem the outflow of dollars from the U.S. 
B) was discouraged by U.S.legislation designed to stem the outflow of dollars from the U.S. 
A) was encouraged by U.S.legislation designed to stem the outflow of dollars from the U.S. 
B) was discouraged by U.S.legislation designed to stem the outflow of dollars from the U.S.

Question 9

In the years leading to the collapse of the Bretton Woods system

Accepted Answer

A) it became clear that the dollar was undervalued. 
B) it became clear that the dollar was overvalued. 
A) it became clear that the dollar was undervalued. 
B) it became clear that the dollar was overvalued.

Question 10

The Mexican Peso Crisis was touched off by

Accepted Answer

A) an unsurprising announcement by the Mexican government to devalue to peso against the dollar by 14 percent. 
B) an unexpected announcement by the Mexican government to devalue to peso against the dollar by 14 percent. 
C) an announcement by the Mexican government to enact a currency board arrangement with the U.S.dollar. 
D) contagion from other Latin American and Asian financial markets. 
A) an unsurprising announcement by the Mexican government to devalue to peso against the dollar by 14 percent. 
B) an unexpected announcement by the Mexican government to devalue to peso against the dollar by 14 percent. 
C) an announcement by the Mexican government to enact a currency board arrangement with the U.S.dollar. 
D) contagion from other Latin American and Asian financial markets.

Question 11

In the 1850s the French franc was valued by both gold and silver,under the official French ratio which equated a gold franc to a silver franc 15½ times as heavy.At the same time,the gold from newly discovered mines in California poured into the market,depressing the value of gold.As a result,

Accepted Answer

A) the franc effectively became a silver currency. 
B) the franc effectively became a gold currency. 
C) silver became overvalued under the French official ratio. 
D) answers a and c are correct 
A) the franc effectively became a silver currency. 
B) the franc effectively became a gold currency. 
C) silver became overvalued under the French official ratio. 
D) answers a and c are correct

Question 12

Gresham's Law states that

Accepted Answer

A) bad money drives good money out of circulation. 
B) good money drives bad money out of circulation. 
C) if a country bases its currency on both gold and silver, at an official exchange rate, it will be the more valuable of the two metals that circulate. 
D) none of the above. 
A) bad money drives good money out of circulation. 
B) good money drives bad money out of circulation. 
C) if a country bases its currency on both gold and silver, at an official exchange rate, it will be the more valuable of the two metals that circulate. 
D) none of the above.

Question 13

A central bank can fix an exchange rate

Accepted Answer

A) in perpetuity. 
B) only for as long as the market believes that it has the political will to do so. 
C) only for as long as it has reserves of gold. 
D) only for as long as it has independence of monetary policy. 
A) in perpetuity. 
B) only for as long as the market believes that it has the political will to do so. 
C) only for as long as it has reserves of gold. 
D) only for as long as it has independence of monetary policy.

Question 14

Since the end of the fixed exchange rate system of the Smithsonian agreement

Accepted Answer

A) exchange rates were revalued in the Bretton Woods agreement. 
B) exchange rates have been allowed to float. 
C) the United States returned to a gold standard. 
D) the zone of monetary stability has been limited to the U.S., Canada, and Mexico. 
A) exchange rates were revalued in the Bretton Woods agreement. 
B) exchange rates have been allowed to float. 
C) the United States returned to a gold standard. 
D) the zone of monetary stability has been limited to the U.S., Canada, and Mexico.

Question 15

The first full-fledged gold standard

Accepted Answer

A) was not established until 1821 in Great Britain, when notes from the Bank of England were made fully redeemable for gold. 
B) was not established until 1780 in the United States, when notes from the Continental Army were made fully redeemable for gold. 
C) was established in 986 during the Han dynasty in China. 
D) none of the above 
A) was not established until 1821 in Great Britain, when notes from the Bank of England were made fully redeemable for gold. 
B) was not established until 1780 in the United States, when notes from the Continental Army were made fully redeemable for gold. 
C) was established in 986 during the Han dynasty in China. 
D) none of the above

Question 16

A "good" (or ideal)international monetary system should provide

Accepted Answer

A) liquidity, elasticity, and flexibility. 
B) elasticity, sensitivity, and reliability. 
C) liquidity, adjustments, and confidence. 
D) none of the above 
A) liquidity, elasticity, and flexibility. 
B) elasticity, sensitivity, and reliability. 
C) liquidity, adjustments, and confidence. 
D) none of the above

Question 17

The core of the Bretton Woods system was the

Accepted Answer

A) World Bank. 
B) IMF. 
C) United Nations. 
D) Interstate Commerce Commission. 
A) World Bank. 
B) IMF. 
C) United Nations. 
D) Interstate Commerce Commission.

Question 18

To avoid currency crisis in the face of fully integrated capital markets,a country can have a

Accepted Answer

A) floating exchange rate. 
B) fixed exchange rate. 
C) fixed exchange rate that adjusts. 
D) a and b can both help to avoid currency crises. 
A) floating exchange rate. 
B) fixed exchange rate. 
C) fixed exchange rate that adjusts. 
D) a and b can both help to avoid currency crises.

Question 19

Consider the supply-demand framework for the British pound relative to the U.S.dollar shown in the nearby chart.The exchange rate is currently $1.80 = £1.00.Which of the following is correct?

Accepted Answer

A) To "fix" the exchange rate at $1.80 = £1.00, the Federal Reserve could use contractionary monetary policy to shift the demand curve to the left. 
B) To "fix" the exchange rate at $1.80 = £1.00, the U.S.government could use contractionary fiscal policy to shift the demand curve to the left. 
C) The British Government could use fiscal or monetary policy to shift the supply curve to the right to fix the exchange rate to $1.80 = £1.00. 
D) All of the above. 
A) To "fix" the exchange rate at $1.80 = £1.00, the Federal Reserve could use contractionary monetary policy to shift the demand curve to the left. 
B) To "fix" the exchange rate at $1.80 = £1.00, the U.S.government could use contractionary fiscal policy to shift the demand curve to the left. 
C) The British Government could use fiscal or monetary policy to shift the supply curve to the right to fix the exchange rate to $1.80 = £1.00. 
D) All of the above.

Question 20

Suppose that the British pound is pegged to gold at £6 per ounce,whereas one ounce of gold is worth €12.Under the gold standard,any misalignment of the exchange rate will be automatically corrected by cross border flows of gold.Calculate the possible gains for buying €1,000,if the British pound becomes undervalued and trades for €1.80.(Assume zero shipping costs). (Hint: Gold is first purchased using the devalued British pound from the Bank of England,then shipped to France and sold for €1,000 to the Bank of France).

Accepted Answer

A) £55.56 
B) £65.56 
C) £75.56 
D) £85.56 
A) £55.56 
B) £65.56 
C) £75.56 
D) £85.56

The single European currency,the euro,was adopted by 11 member nations on January 1 of what year?

With regard to the current exchange rate arrangement between Italy and Germany,it is best characterized as

Consider the supply-demand framework for the British pound relative to the U.S.dollar shown in the nearby chart.The exchange rate is currently $1.80 = £1.00.Which of the following is correct?

The majority of countries got off gold in 1914 when

Special Drawing Rights (SDR)are

During the period of the classical gold standard (1875-1914)there were

The growth of the Eurodollar market,which is a transnational,unregulated fund market

In the years leading to the collapse of the Bretton Woods system

The Mexican Peso Crisis was touched off by

In the 1850s the French franc was valued by both gold and silver,under the official French ratio which equated a gold franc to a silver franc 15½ times as heavy.At the same time,the gold from newly discovered mines in California poured into the market,depressing the value of gold.As a result,

Gresham's Law states that

A central bank can fix an exchange rate

Since the end of the fixed exchange rate system of the Smithsonian agreement

The first full-fledged gold standard

A "good" (or ideal)international monetary system should provide

The core of the Bretton Woods system was the

To avoid currency crisis in the face of fully integrated capital markets,a country can have a

Consider the supply-demand framework for the British pound relative to the U.S.dollar shown in the nearby chart.The exchange rate is currently $1.80 = £1.00.Which of the following is correct?

Globalization and the Multinational Firm

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters

Exam 2: International Monetary System

The single European currency,the euro,was adopted by 11 member nations on January 1 of what year?

With regard to the current exchange rate arrangement between Italy and Germany,it is best characterized as

Consider the supply-demand framework for the British pound relative to the U.S.dollar shown in the nearby chart.The exchange rate is currently $1.80 = £1.00.Which of the following is correct?

The majority of countries got off gold in 1914 when

Special Drawing Rights (SDR)are

During the period of the classical gold standard (1875-1914)there were

The growth of the Eurodollar market,which is a transnational,unregulated fund market

In the years leading to the collapse of the Bretton Woods system

The Mexican Peso Crisis was touched off by

In the 1850s the French franc was valued by both gold and silver,under the official French ratio which equated a gold franc to a silver franc 15½ times as heavy.At the same time,the gold from newly discovered mines in California poured into the market,depressing the value of gold.As a result,

Gresham's Law states that

A central bank can fix an exchange rate

Since the end of the fixed exchange rate system of the Smithsonian agreement

The first full-fledged gold standard

A "good" (or ideal)international monetary system should provide

The core of the Bretton Woods system was the

To avoid currency crisis in the face of fully integrated capital markets,a country can have a

Consider the supply-demand framework for the British pound relative to the U.S.dollar shown in the nearby chart.The exchange rate is currently $1.80 = £1.00.Which of the following is correct?

Globalization and the Multinational Firm

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters