Exam 30: The International Financial System

Figure 30-6 -Refer to Figure 30-6. Which of the following would cause the change depicted in the figure above?

Members of the European Union decided to adopt a single currency by what year?

Purchasing power parity is the theory that, in the long run, exchange rates should be at a level such that equivalent amounts of any country's currency

Adoption of the euro as both a medium of exchange and unit of account in the EU countries serves to increase competition among European firms and decrease individual countries' monetary policy options when confronted by recessions and booms.

Investors in which two countries accounted for about 25 percent of all foreign purchases of U.S. stocks and bonds in 2012?

Figure 30-8 -Refer to Figure 30-8. The equilibrium exchange rate is at A, $1.25/euro. Suppose the European Central Bank pegs its currency at $1.00/euro. Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D2. After the shift,

What factors are not important in determining exchange rate fluctuations in the long run?

If a country's currency is determined only by the demand and supply for that country's currency, the country is said to have a

An increase in the value of the U.S. dollar relative to the Japanese yen would be ________ for Japanese owners of U.S. houses who wish to sell those houses, and ________ for Japanese manufacturers operating factories in the United States that export their products back to Japan.

In 1931, the first major country to abandon the gold standard - in order to increase its policy options in face of the Great Depression - was

One reason purchasing power parity does not exactly hold is that many goods are not traded internationally.

Compared to a situation in which there is no change in the value of the dollar relative to the peso, in which of the following situations would you be worse off?

Under the Bretton Woods exchange rate system, ________ could sell their dollars to the American government in exchange for gold.

Article Summary Cuba has announced its intentions to end its dual currency system which has been in place since 1994. Presently, Cuba has two official currencies, the national peso (CUP) and the convertible peso (CUC). The national peso is the currency used by most businesses and citizens, and the convertible peso was designed to be used primarily in the tourism industry and for foreign trade. The coveted convertible peso is pegged to the U.S. dollar and is worth 25 times the national peso, despite the government treating them as having equal value in official accounts, trading on a one-for-one basis for official state entities. Few Cubans other than those with government ties have access to convertible pesos, which allows them to enjoy a much improved lifestyle due to the currency's relative value. One exception is people working in the tourist-centered hospitality industries, such as waiters and hotel staff, who receive convertible pesos as tips, often earning them more than medical and legal professionals who are paid in national pesos. The currency unification is expected to be a gradual process, taking up to 18 months, and could involve both a devaluing of the convertible peso and a revaluing of the national peso. Source: Hannah Strange, "Cuba to end dual currency as part of Castro's economic reforms," Telegraph, October 22, 2013. -Refer to the Article Summary. The convertible peso (CUC), which is pegged to the U.S. dollar, is worth 25 times the national peso, yet Cuban officials treat the convertible peso and the national peso as being of equal value. This indicates that the national peso is ________ compared to the convertible peso, and would need to be ________ to for the two currencies have equal value in the marketplace.

What are the three main exchange rate systems, and how do they operate?

In the United States today, the Federal Reserve will give you ________ in exchange for $1.

A Big Mac costs $4.56 in the United States and 9.2 zlotys in Poland. If the exchange rate is 3 zlotys per dollar, purchasing power parity predicts that

By the late 1950s, dollars held by foreign central banks exceeded the official dollar value of U.S. gold reserves.

If a firm in Thailand borrows dollars from a U.S. bank, its interest payments on the loan in bahts will decrease if the baht appreciates against the dollar.

Figure 30-3 -Refer to Figure 30-3. At what level should the Thai government peg its currency to the dollar to make Thai exports cheaper to the United States?