Exam 19: The International Financial System

Which of the following would increase the value of the dollar in the long run?

If the GDP deflator in the United States is 114,and the GDP deflator in Ukraine is 142,which of the following changes would the theory of purchasing power parity predict? (The Ukrainian currency is the hryvnia. )

The currencies of Poland and Iceland (the zloty and the krona,respectively)declined in value relative to the euro following the financial crisis of 2008.This means that the

If currencies around the world are based on the gold standard,and Japan raises the amount of gold for which the yen will trade,then holding all else constant,

Under the Bretton Woods exchange rate system,the U.S.government agreed to buy or sell gold at a fixed price of ________ per ounce.

You are made better off in which of the following situations?

In 1991,Argentina decided to peg its currency (the Argentinean peso)to the U.S.dollar.To maintain the peg,Argentina had to purchase surplus pesos on the foreign exchange market,depleting its reserves of dollars to such an extent that it eventually had to abandon the peg.Show graphically what this implies about the peg relative to the equilibrium exchange rate in the market for the Argentinean peso.

Under the Bretton Woods system,central bankers could obtain foreign currency loans from the

You decide to work in Japan for the next 10 years,accumulate some savings,then move back to the United States and convert your savings from yen to dollars.At the time of your move,economists predict that consumers in the United States have reignited their love of Japanese products,especially hybrid cars,and expect that this strong preference for Japanese products will continue for the next decade.How should this influence your decision to work and save in Japan?

The United States abandoned the Bretton Woods system of exchange rates in

Figure 19-3 -Refer to Figure 19-3.If the Thai government pegs its currency to the dollar at a value above $.03/baht,we would say the currency is

Will the use of the euro help increase economic growth in countries in the European Union? Will it help individual countries using the euro in times of recession? Explain.

South Korea,Indonesia,Malaysia,and Thailand all pegged their currencies to the dollar at one point in time.Because some of these currencies were overvalued at the pegged rate,speculators anticipated these countries would abandon the peg and speculators began selling those currencies.Explain how this speculation would affect the ability of a country to maintain a pegged exchange rate.

The "Big Mac Theory of Exchange Rates" tests the accuracy of purchasing power parity theory.In July 2015,The Economist reported that the average price of a Big Mac in the United States was $4.79.In Switzerland,the average price of a Big Mac at that time was 6.50 Swiss francs.If the exchange rate between the dollar and the Swiss franc was 0.93 Swiss francs per dollar,explain how it would be profitable to buy Big Macs in the United States instead of in Switzerland.

The Bretton Woods system was established in 1944 and remained in place until the early 1970s.

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

Ariel is a Canadian citizen who works in Montreal,Canada and owns a winter home in Palm Beach,Florida.When Ariel spends the winters in Palm Beach,an increase in the value of the Canadian dollar relative to the U.S.dollar should

Explain why international capital markets have expanded since the 1980s.

Under the gold standard,the government must have enough gold to back up any

In order to support an undervalued euro,the European Central Bank must ________ dollars.Over time,this action will cause the rate of inflation in the EU to ________.