Exam 3: The International Monetary System

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.

Members of the International Monetary Fund may settle transactions among themselves by transferring Special Drawing Rights (SDRs).

The Euro currency is fixed against other currencies on the international currency exchange markets, but allows member country currencies to float against each other.

In January 2000 Ecuador officially replaced its national currency, the Ecuadorian sucre, with the U.S. dollar. This practice is known as:

Since 2009 the IMF's exchange rate regime classification system uses a "de facto classification" methodology. Under this system, currencies that are predominantly market-driven are considered to be:

Since 2009 the IMF's exchange rate regime classification system uses a "de facto classification" methodology. Under this system, countries with "fixed exchange rates" are 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:

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

Today, the United States has been ejected from the International Monetary Fund for refusal to pay annual dues.

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.

A currency board exists when a country's central bank commits to back its money supply entirely 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 regime or an exchange rate regime of dollarization of a currency board.

From the time of its creation through July 2012, the euro peaked versus the USD in April 2008 at around $1.60/€

Which of the following statements is NOT true?

The ability of a country to profit from its ability to print money is known as:

Although the contemporary international monetary system is typically referred to as a "floating regime," it is clearly not the case for the majority of the world's nations.

The International Monetary Fund (IMF):

Of the following, which is NOT a trade-off that must be dealt with in any exchange rate regime?

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

Dollarization is a common solution for countries suffering from currency revaluation.