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| 1 | |
The original Bretton Woods agreement established a new system of discipline and flexibility that would be policed by the governing board of the World Bank. |
| | A) | True |
| | B) | False |
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| 2 | |
Most economists trace the breakup of the fixed exchange rate system in 1973 to the policies of Lyndon Johnson, who was financing a war and expanding domestic spending while refusing to raise taxes. It is generally agreed that this was a unique event and has no modern corollary. |
| | A) | True |
| | B) | False |
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| 3 | |
In recent history, the value of the U.S. dollar has been determined by both market forces and government intervention, demonstrating a managed-float or dirty-float system. |
| | A) | True |
| | B) | False |
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| 4 | |
The case in support of floating exchange rates has two main elements: monetary policy autonomy and automatic trade balance adjustments. |
| | A) | True |
| | B) | False |
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| 5 | |
The case for fixed exchange rates rests on arguments about monetary discipline, speculation, uncertainty, and the lack of connection between the trade balance and exchange rates. |
| | A) | True |
| | B) | False |
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| 6 | |
The great strength of the gold standard – and why almost 80 years after its collapse people still believe it should return to it – is that ____________________. |
| | A) | it contained a powerful mechanism for achieving balance-of-trade equilibrium |
| | B) | gold could always be converted to jewelry or coins if needed |
| | C) | gold is honored and valued by every known culture in the world |
| | D) | due to its tangibility, it is virtually immune from fraud and deception |
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| 7 | |
A basic feature of the IMF, and part of the design of the original Bretton Woods agreement, was that countries could borrow a limited amount without adhering to any specific agreements, but extensive drawings would require ____________________. |
| | A) | guarantees from all the private banks in the borrowing country |
| | B) | agreement from the majority of IMF members |
| | C) | agreement from the country to adopt increasingly stringent IMF supervision of its macroeconomic policies |
| | D) | concurrence of the directors of the World Bank |
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| 8 | |
The agreement that changed the IMF’s policy from a fixed to a floating exchange rate system in January 1976 was known as the ___________________. |
| | A) | Plaza Accord |
| | B) | Louvre Accord |
| | C) | Treaty of Rome |
| | D) | Jamaica Agreement |
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| 9 | |
It can be very difficult for a smaller country to maintain a pegged exchange rate against another currency if ____________________. |
| | A) | both currencies are pegged to a third currency |
| | B) | capital is flowing out of a country and foreign exchange traders are speculating against the currency |
| | C) | the country runs a persistent budget surplus |
| | D) | the IMF will not endorse the peg |
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| 10 | |
A country that introduces a ________________ holds reserves of foreign currency equal at the fixed exchange rate to at least 100 percent of the domestic currency issued. |
| | A) | fixed reserve regime |
| | B) | domestic convertibility system |
| | C) | currency board |
| | D) | federal reserve system |
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| 11 | |
Which of the following is not one of the three broad types of crises that have required IMF intervention? |
| | A) | Exchange rate crisis |
| | B) | Currency crisis |
| | C) | Bank crisis |
| | D) | Foreign debt crisis |
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| 12 | |
In response to criticisms of inappropriate policies and lack of accountability, among others, the IMF has: |
| | A) | kept to its charter to ensure stability. |
| | B) | developed an exit strategy that will move responsibility to the WTO. |
| | C) | started to change its approach. |
| | D) | limited the kinds of interventions it will undertake. |
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| 13 | |
IMF rescue efforts for troubled domestic economies may involve enabling weak governments a way out of their management financial messes created by reckless behavior. This is known to economists as: |
| | A) | moral hazard. |
| | B) | monetary hazard. |
| | C) | loan hazard. |
| | D) | debt hazard. |
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| 14 | |
Which of the following is not a business strategy for dealing with the risks in exchange rate movements? |
| | A) | Insurance coverage against exchange rate changes |
| | B) | Contracting out manufacturing |
| | C) | Dispersing production to locations around the world |
| | D) | Insisting payments be made in gold certificates |
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| 15 | |
Businesses are major players in the international trade and investment environment, and it seems to be in the best of interest of businesses to: |
| | A) | use their influence with governments to promote an international monetary system that facilities growth of international trade and investment. |
| | B) | stay out of the political process and keep relations with government at an arm’s length. |
| | C) | focus more on international organizations rather than the national government in which they operate. |
| | D) | remove as much decision making from the public sector and work instead for private sector solutions. |
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