Question 1

Since 2009 the IMF's exchange rate regime classification system uses a "de facto classification" methodology. Under this system, a country that has given up their own sovereignty over monetary policy is considered to have:

Accepted Answer

A)  a residual agreement.
B)  hard pegs.
C)  soft pegs.
D)  floating arrangements. B

Question 2

The European Central Bank is a strong and independent central bank that has completely replaced the individual central banks of the countries that use the euro as their currency.

Accepted Answer

A) True 
 B)False  False

Question 3

The euro is an example of a rigidly fixed system, acting as a single currency for its member countries. However, the euro itself is an independently floating currency against all other currencies.

Accepted Answer

A) True 
 B)False  True

Question 4

The post WWII international monetary agreement that was developed in 1944 is known as the:

Accepted Answer

A)  United Nations.
B)  League of Nations.
C)  Yalta Agreement.
D)  Bretton Woods Agreement.

Question 5

The authors discuss the concept of the "Impossible Trinity" or the inability to achieve simultaneously the goals of exchange rate stability, full financial integration, and monetary independence. If a country chooses to have a pure float exchange rate regime, which two of the three goals is a country most able to achieve?

Accepted Answer

A)  monetary independence and exchange rate stability
B)  exchange rate stability and full financial integration
C)  full financial integration and monetary independence
D)  A country cannot attain any of the exchange rate goals with a pure float exchange rate regime.

Question 6

The countries that use the euro as their currency have:

Accepted Answer

A)  agreed to use a single currency (exchange rate stability) , allow the free movement of capital in and out of their economies (financial integration) , but give up individual control of their own money supply (monetary independence) .
B)  gained control over their own money supply (monetary independence) , allowed the free movement of capital in and out of their economies (financial integration) , but give up exchange rate stability.
C)  agreed to use a single currency (exchange rate stability) , allow individual control of their own money supply (monetary independence) , but give up the free movement of capital in and out of their economies (financial integration) .
D)  none of the above

Question 7

Which of the following is NOT an argument against dollarization?

Accepted Answer

A)  Dollarization causes a loss of sovereignty over domestic monetary policy.
B)  Dollarization removes currency volatility against the dollar.
C)  Dollarization causes the country to lose the power of seignorage.
D)  The central bank of the dollarized country loses the role of lender of last resort.

Question 8

Under the terms of Bretton Woods, countries tried to maintain the value of their currencies to within 1% of a hybrid security made up of the U.S. dollar, British pound, and Japanese yen.

Accepted Answer

A) True 
 B)False

Question 9

Most Western nations were on the gold standard for currency exchange rates from 1876 until 1914. Today we have several different exchange rate regimes in use, but most larger economy nations have freely floating exchange rates today and are not obligated to convert their currency into a predetermined amount of gold on demand. Currently several parties still call for the "good old days" and a return to the gold standard. Develop an argument as to why this is a good idea.

Accepted Answer

The answer of Most Western nations were on the gold...

Question 10

The members of the EU do have relative freedom to set their own fiscal policies- government spending, taxation, and the creation of government surpluses or deficits. They are expected to keep deficit spending within limits.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following led to the eventual demise of the fixed currency exchange rate regime worked out at Bretton Woods?

Accepted Answer

A)  widely divergent national monetary and fiscal policies among member nations
B)  differential rates of inflation across member nations
C)  several unexpected economic shocks to member nations
D)  all of the above

Question 12

Another name for the International Bank for Reconstruction and Development is:

Accepted Answer

A)  the Recon Bank.
B)  the European Monetary System.
C)  the Marshall Plan.
D)  the World Bank.

Question 13

Under the gold standard of currency exchange that existed from 1879 to 1914, an ounce of gold cost $20.67 in U.S. dollars and £4.2474 in British pounds. Therefore, the exchange rate of pounds per dollar under this fixed exchange regime was:

Accepted Answer

A)  £4.8665/$.
B)  £0.2055/$.
C)  always changing because the price of gold was always changing.
D)  unknown because there is not enough information to answer this question.

Question 14

Regime structures like the gold standard required no cooperative policies among countries, only the assurance that all would abide by the "rules of the game."

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is NOT a required convergence criteria to become a full member of the European Economic and Monetary Union (EMU)?

Accepted Answer

A)  National birthrates must be at 2.0 or lower per person.
B)  The fiscal deficit should be no more than 3% of GDP.
C)  Nominal inflation should be no more than 1.5% above the average inflation rate for the three members with the lowest inflation rates in the previous year.
D)  Government debt should be no more than 60% of GDP.

Question 16

Based on the premise that, other things equal, countries would prefer a fixed exchange rate, which of the following statements is NOT true?

Accepted Answer

A)  Fixed rates provide stability in international prices for the conduct of trade.
B)  Fixed exchange rate regimes necessitate that central banks maintain large quantities of international reserves for use in the occasional defense of the fixed rate.
C)  Fixed rates are inherently inflationary in that they require the country to follow loose monetary and fiscal policies.
D)  Stable prices aid in the growth of international trade and lessen exchange rate risks for businesses.

Question 17

According to the authors, what is the single most important mandate of the European Central Bank?

Accepted Answer

A)  Promote international trade for countries within the European Union.
B)  Price, in euros, all products for sale in the European Union.
C)  Promote price stability within the European Union.
D)  Establish an EMU trade surplus with the United States.

Question 18

All exchange rate regimes must deal with the trade-off between rules and discretion as well as between cooperation and independence.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is NOT an attribute of the "ideal" currency?

Accepted Answer

A)  monetary independence
B)  full financial integration
C)  exchange rate stability
D)  All are attributes of an ideal currency.

Question 20

Which of the following is a way in which the euro affects markets?

Accepted Answer

A)  Countries within the Euro zone enjoy cheaper transaction costs.
B)  Currency risks and costs related to exchange rate uncertainty are reduced.
C)  Consumers and business enjoy price transparency and increased price-based competition.
D)  all of the above

Exam 3: The International Monetary System

Since 2009 the IMF's exchange rate regime classification system uses a "de facto classification" methodology. Under this system, a country that has given up their own sovereignty over monetary policy is considered to have:

The European Central Bank is a strong and independent central bank that has completely replaced the individual central banks of the countries that use the euro as their currency.

The euro is an example of a rigidly fixed system, acting as a single currency for its member countries. However, the euro itself is an independently floating currency against all other currencies.

The post WWII international monetary agreement that was developed in 1944 is known as the:

The countries that use the euro as their currency have:

Which of the following is NOT an argument against dollarization?

Under the terms of Bretton Woods, countries tried to maintain the value of their currencies to within 1% of a hybrid security made up of the U.S. dollar, British pound, and Japanese yen.

The members of the EU do have relative freedom to set their own fiscal policies- government spending, taxation, and the creation of government surpluses or deficits. They are expected to keep deficit spending within limits.

Which of the following led to the eventual demise of the fixed currency exchange rate regime worked out at Bretton Woods?

Another name for the International Bank for Reconstruction and Development is:

Under the gold standard of currency exchange that existed from 1879 to 1914, an ounce of gold cost $20.67 in U.S. dollars and £4.2474 in British pounds. Therefore, the exchange rate of pounds per dollar under this fixed exchange regime was:

Regime structures like the gold standard required no cooperative policies among countries, only the assurance that all would abide by the "rules of the game."

Which of the following is NOT a required convergence criteria to become a full member of the European Economic and Monetary Union (EMU) ?

Based on the premise that, other things equal, countries would prefer a fixed exchange rate, which of the following statements is NOT true?

According to the authors, what is the single most important mandate of the European Central Bank?

All exchange rate regimes must deal with the trade-off between rules and discretion as well as between cooperation and independence.

Which of the following is NOT an attribute of the "ideal" currency?

Which of the following is a way in which the euro affects markets?