Question 1

Jade, a working professional, began driving rashly ever since she got her car insured against damage. She believed that the insurance claim would cover her in case of any accidents. What does Jade's behavior display?

Accepted Answer

A)  Cognitive dissonance
B)  Conflict of interest
C)  Systemic risk
D)  Moral hazard
E)  Tragedy of the commonsF) A) and B)
G) C) and E)

Question 2

From mid-2008 through early 2009, the value of the dollar moderately increased against major currencies, despite the fact that the American economy was suffering from a serious financial crisis. Which of the following was a reason for this phenomenon?

Accepted Answer

A)  High real interest rates in the United States compared to any other developed region in the world sparked an inflow of funds into the country.
B)  U.S. assets were characterized by a high-risk, high-return payoff which prompted foreign investors to park their funds.
C)  Foreign investors were excited at the possibility of high returns following the government bail-out of financial institutions.
D)  Foreign investors put their money in low-risk U.S. assets such as low-yielding U.S. government bonds.
E)  Foreign investors saw opportunities in the United States as the level of indebtedness had begun to reduce.F) A) and B)
G) A) and C)

Question 3

Under a floating exchange rate regime, market forces have produced a volatile dollar exchange rate.

Accepted Answer

A) True 
 B)False

Question 4

The International Monetary Fund has been criticized for:

Accepted Answer

A)  its lack of a "one-size-fits-all" approach to macroeconomic policy.
B)  encouraging moral hazard among banks.
C)  its lack of power and authority.
D)  using external experts to gain knowledge about a country.
E)  keeping its operations open to outside scrutiny.F) C) and D)
G) A) and B)

Question 5

In terms of speculation, describe the arguments for a fixed exchange rate system.

Accepted Answer

Critics of a floating exchange rate regi...

Question 6

In January 1976, which one of the followed revised the International Monetary Fund's Articles of Agreement to reflect the new reality of floating exchange rates?

Accepted Answer

A)  Jamaica agreement
B)  Bretton Woods agreement
C)  Marshall Plan
D)  General agreement on Tariffs and Trade
E)  Plaza AccordF) C) and D)
G) All of the above

Question 7

Under the U.S. macroeconomic policy package of 1965-1968, President Lyndon Johnson backed an increase in U.S. government spending that was financed by:

Accepted Answer

A)  the sale of gold reserves.
B)  borrowing from the International Monetary Fund.
C)  an increase in the money supply.
D)  an increase in taxes.
E)  selling bonds in the international capital market.F) All of the above
G) None of the above

Question 8

Which of the following was a reason that led to the collapse of the gold standard in 1939?

Accepted Answer

A)  Difficulty and complexity in using the gold standard to determine the exchange rate
B)  Agreement by governments to convert paper currency into gold on demand at a fixed rate
C)  A cycle of competitive currency devaluations by various countries
D)  Expansion in the volume of international trade in the wake of the Industrial Revolution
E)  The inability of the gold standard to act as a mechanism for achieving balance-of-trade equilibrium by all countriesF) B) and C)
G) A) and D)

Question 9

Which of the following is true of monetary contraction in a fixed exchange rate system?

Accepted Answer

A)  It requires low interest rates.
B)  It increases the demand for money.
C)  It puts downward pressure on a fixed exchange rate.
D)  It leads to an inflow of money from abroad.
E)  It can lead to high price inflation.F) A) and D)
G) B) and D)

Question 10

In terms of the gold standard, the amount of currency needed to purchase one ounce of gold was referred to as the:

Accepted Answer

A)  gold to bond ratio.
B)  gold reserve ratio.
C)  gold mix ratio.
D)  gold par value.
E)  gold net value.F) A) and B)
G) A) and E)

Question 11

The activities of the International Monetary Fund have declined after the collapse of the Bretton Woods system in 1973.

Accepted Answer

A) True 
 B)False

Question 12

The major problem with the gold standard was that no multinational institution could stop countries from engaging in competitive devaluations.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements is true about the current monetary system?

Accepted Answer

A)  Use of instruments such as the forward market and swaps has decreased since the breakdown of the Bretton Woods system.
B)  The present monetary system lacks the volatile movements in exchange rates that existed in a fixed exchange rate system.
C)  The current foreign exchange market works exactly as depicted in the purchasing power parity theory.
D)  Instruments such as the forward market and swaps increase the foreign exchange risk a company faces.
E)  A combination of government intervention and speculative activity drives the current foreign exchange market.F) All of the above
G) B) and C)

Question 14

Explain the concept of a currency board.

Accepted Answer

A country that introduces a currency boa...

Question 15

As the only currency that could be converted into gold, the British pound occupied a central place in the fixed exchange rate system.

Accepted Answer

A) True 
 B)False

Question 16

Briefly describe the pegged exchange rate regime.

Accepted Answer

Under a pegged exchange rate regime, a c...

Question 17

Which of the following is a characteristic of the floating exchange rate regime?

Accepted Answer

A)  It allows for automatic trade balance adjustments.
B)  The use of monetary policy by the government is restricted.
C)  It allows for greater monetary discipline.
D)  It limits the destabilizing effects of exchange rate speculation.
E)  It eliminates volatility and uncertainty associated with exchange rates.F) B) and E)
G) B) and C)

Question 18

The International Monetary Fund can force countries to adopt the policies required to correct economic mismanagement.

Accepted Answer

A) True 
 B)False

Question 19

Under a floating exchange rate system, a country's ability to expand or contract its money supply as it sees fit is limited by the need to maintain exchange rate parity.

Accepted Answer

A) True 
 B)False

Question 20

Most of the International Monetary Fund's loan activities since the mid-1970s have been targeted toward developing nations typically because:

Accepted Answer

A)  developed nations are not willing to enact certain macroeconomic policies in return for money.
B)  developing nations are more than twice as likely to experience financial crises as developed nations.
C)  it does not have enough funds to lend to large and developed countries.
D)  only developing nations are allowed to be its beneficiaries.
E)  of relatively slow economic growth in the developed countries of Europe.F) C) and E)
G) All of the above

Exam 11: The International Monetary System

In terms of the gold standard, the amount of currency needed to purchase one ounce of gold was referred to as the:

Correct AnswerverifiedShow Answer

Which of the following is a characteristic of the floating exchange rate regime?

Correct AnswerverifiedShow Answer

From mid-2008 through early 2009, the value of the dollar moderately increased against major currencies, despite the fact that the American economy was suffering from a serious financial crisis. Which of the following was a reason for this phenomenon?

Correct AnswerverifiedShow Answer

The major problem with the gold standard was that no multinational institution could stop countries from engaging in competitive devaluations.

Correct AnswerverifiedShow Answer

The activities of the International Monetary Fund have declined after the collapse of the Bretton Woods system in 1973.

Correct AnswerverifiedShow Answer

In terms of speculation, describe the arguments for a fixed exchange rate system.

Correct AnswerverifiedCritics of a floating exchange rate regi...View AnswerShow Answer

Which of the following is true of monetary contraction in a fixed exchange rate system?

Correct AnswerverifiedShow Answer

Briefly describe the pegged exchange rate regime.

Correct AnswerverifiedUnder a pegged exchange rate regime, a c...View AnswerShow Answer

Under a floating exchange rate regime, market forces have produced a volatile dollar exchange rate.

Correct AnswerverifiedShow Answer

In January 1976, which one of the followed revised the International Monetary Fund's Articles of Agreement to reflect the new reality of floating exchange rates?

Correct AnswerverifiedShow Answer

Under the U.S. macroeconomic policy package of 1965-1968, President Lyndon Johnson backed an increase in U.S. government spending that was financed by:

Correct AnswerverifiedShow Answer

Which of the following was a reason that led to the collapse of the gold standard in 1939?

Correct AnswerverifiedShow Answer

Jade, a working professional, began driving rashly ever since she got her car insured against damage. She believed that the insurance claim would cover her in case of any accidents. What does Jade's behavior display?

Correct AnswerverifiedShow Answer

Most of the International Monetary Fund's loan activities since the mid-1970s have been targeted toward developing nations typically because:

Correct AnswerverifiedShow Answer

As the only currency that could be converted into gold, the British pound occupied a central place in the fixed exchange rate system.

Correct AnswerverifiedShow Answer

Under a floating exchange rate system, a country's ability to expand or contract its money supply as it sees fit is limited by the need to maintain exchange rate parity.

Correct AnswerverifiedShow Answer

Explain the concept of a currency board.

Correct AnswerverifiedA country that introduces a currency boa...View AnswerShow Answer

The International Monetary Fund can force countries to adopt the policies required to correct economic mismanagement.

Correct AnswerverifiedShow Answer

The International Monetary Fund has been criticized for:

Correct AnswerverifiedShow Answer

Which of the following statements is true about the current monetary system?

Correct AnswerverifiedShow Answer

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Critics of a floating exchange rate regi...
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Under a pegged exchange rate regime, a c...
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A country that introduces a currency boa...
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