Question 1

The euro zone is remarkably comparable to the United States in terms of

Accepted Answer

A)  population size.
B)  GDP.
C)  international trade share.
D)  all of the above A

Question 2

Prior to the peso crisis,Mexico depended on foreign portfolio capital to finance its economic development.This foreign capital influx

Accepted Answer

A)  caused higher domestic inflation.
B)  led to an overvalued peso.
C)  helped Mexico's trade balances.
D)  a and b are correct D

Question 3

Which factors are related to the collapse of the Argentine currency board system and ensuing economic crisis?

Accepted Answer

A)  The lack of fiscal discipline on the part of the Argentine government
B)  Labor market inflexibility
C)  Contagion from the financial crises in Russia and Brazil
D)  All of the above D

Question 4

The G-7 is composed of

Accepted Answer

A)  Canada, France, Japan, Germany, Italy, the U.K., and the United States.
B)  Switzerland, France, Japan, Germany, Italy, the U.K., and the United States.
C)  Switzerland, France, North Korea, Germany, Italy, the U.K., and the United States.
D)  Switzerland, France, Japan, Germany, Canada, the U.K., and the United States.

Question 5

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 $1.60 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 $1.60 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 6

The Exchange Rate Mechanism (ERM)is

Accepted Answer

A)  the procedure by which ERM member countries collectively manage their exchange rates.
B)  based on a "parity-grid" system, which is a system of par values among ERM countries.
C)  a and b
D)  none of the above

Question 7

The price-specie-flow mechanism will work only if governments are willing to play by the rules of the game by letting the money stock rise and fall as gold flows in and out.Once the government demonetizes (neutralizes)gold,the mechanism will break down.In addition,the effectiveness of the mechanism depends on

Accepted Answer

A)  the income elasticity of the demand for imports.
B)  the price elasticity of the demand for imports.
C)  the price elasticity of the supply of imports.
D)  the income elasticity of the supply of imports.

Question 8

The international monetary system went through several distinct stages of evolution.These stages are summarized,in alphabetic order,as follows: (i)- Bimetallism
(ii)- Bretton Woods system
(iii)- Classical gold standard
(iv)- Flexible exchange rate regime
(v)- Interwar period
The chronological order that they actually occurred is:

Accepted Answer

A)  (iii) , (i) , (iv) , (ii) , and (v) 
B)  (i) , (iii) , (v) , (ii) , and (iv) 
C)  (vi) , (i) , (iii) , (ii) , and (v) 
D)  (v) , (ii) , (i) , (iii) , and (iv)

Question 9

In 1963,President John Kennedy imposed the Interest Equalization Tax (IET)on U.S.purchases of foreign securities.The IET was designed to

Accepted Answer

A)  decrease the cost of foreign borrowing in the U.S.bond market.
B)  increase the cost of foreign borrowing in the U.S.bond market.

Question 10

The Bretton Woods agreement resulted in the creation of

Accepted Answer

A)  the bancor as an international reserve asset.
B)  the World Bank.
C)  the Eximbank.
D)  the Federal Reserve Bank.

Question 11

Once capital markets are integrated,it is difficult for a country to maintain a fixed exchange rate.Why?

Accepted Answer

A)  The market forces may be stronger than the exchange rate intervention that the government can muster.
B)  Portfolio managers will not invest in countries with fixed exchange rates.
C)  Because of the Tobin Tax.
D)  None of the above

Question 12

A currency board arrangement is

Accepted Answer

A)  when the currency of another country circulates as the sole legal tender.
B)  when the country belongs to a monetary or currency union in which the same legal tender is shared by the members of the union.
C)  a monetary regime based on an explicit legislative commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate, combined with restrictions on the issuing authority to ensure the fulfillment of its legal obligation.
D)  where the country pegs its currency at a fixed rate to a major currency where the exchange rate fluctuates within a narrow margin of less than one percent.

Question 13

Under the Bretton Woods system

Accepted Answer

A)  each country established a par value for its currency in relation to the dollar.
B)  the U.S.dollar was pegged to gold at $35 per ounce.
C)  each country was responsible for maintaining its exchange rate within 1 percent of the adopted par value by buying or selling foreign exchanges as necessary.
D)  all of the above

Question 14

Ecuador does not have its own national currency,circulating the U.S.dollar instead.About how many countries do not have their own national currency?

Accepted Answer

A)  10
B)  20
C)  30
D)  40

Question 15

The Bretton Woods system was named after

Accepted Answer

A)  the treasury secretary of the United States in 1945, Bretton Woods.
B)  Bretton Woods, New Hampshire, where the Articles of Agreement of the International Monetary Fund (IMF)  were hammered out.
C)  none of the above.

Question 16

The choice between the alternative exchange rate regimes (fixed or floating)is likely to involve a trade-off between

Accepted Answer

A)  national monetary policy autonomy and international economic integration.
B)  exchange rate uncertainty and national policy autonomy.
C)  Balance of Payments autonomy and inflation.
D)  unemployment and inflation.

Question 17

The Mexican peso crisis is significant in that

Accepted Answer

A)  it is perhaps the first serious international financial crisis touched off by cross-border flight of portfolio capital.
B)  selling by international portfolio managers had a highly destabilizing, contagious effect on the world financial system.
C)  it provides a cautionary tale that as the world's financial markets are becoming more integrated, this type of contagious financial crisis is likely to occur more often.
D)  all of the above.

Question 18

Generally speaking,liberalization of financial markets when combined with a weak,underdeveloped domestic financial system tends to

Accepted Answer

A)  strengthen the domestic financial system in the short run.
B)  create an environment susceptible to currency and financial crises.
C)  raise interest rates and lead to domestic recession.
D)  none of the above

Question 19

Under the Bretton Woods system

Accepted Answer

A)  there was an explicit set of rules about the conduct of international monetary policies.
B)  each country was responsible for maintaining its exchange rate within 1 percent of the adopted par value by buying or selling foreign exchanges as necessary.
C)  the U.S.dollar was the only currency that was fully convertible to gold.
D)  all of the above

Question 20

A booming economy with a fixed or stable nominal exchange rate

Accepted Answer

A)  inevitably brings about an appreciation of the real exchange rate.
B)  inevitably brings about a depreciation of the real exchange rate.
C)  inevitably brings about a stabilization of the real exchange rate.
D)  inevitably brings about increased volatility of the real exchange rate.

Exam 2: International Monetary System

The euro zone is remarkably comparable to the United States in terms of

Prior to the peso crisis,Mexico depended on foreign portfolio capital to finance its economic development.This foreign capital influx

Which factors are related to the collapse of the Argentine currency board system and ensuing economic crisis?

The G-7 is composed of

The Exchange Rate Mechanism (ERM) is

In 1963,President John Kennedy imposed the Interest Equalization Tax (IET) on U.S.purchases of foreign securities.The IET was designed to

The Bretton Woods agreement resulted in the creation of

Once capital markets are integrated,it is difficult for a country to maintain a fixed exchange rate.Why?

A currency board arrangement is

Under the Bretton Woods system

Ecuador does not have its own national currency,circulating the U.S.dollar instead.About how many countries do not have their own national currency?

The Bretton Woods system was named after

The choice between the alternative exchange rate regimes (fixed or floating) is likely to involve a trade-off between

The Mexican peso crisis is significant in that

Generally speaking,liberalization of financial markets when combined with a weak,underdeveloped domestic financial system tends to

Under the Bretton Woods system

A booming economy with a fixed or stable nominal exchange rate