Chapter 9

1. A managed float is also known as a

a. Fixed exchange rate system
b. Pegged exchange rate system
c. Dirty float exchange rate system
d. Floating exchange rate system
2. According to some analysts, under a _____ regime, countries are limited in
their ability to use monetary policy to expand or contract their economies by
the need to maintain exchange rate parity.
a. Fixed exchange rate
b. Managed float
c. Floating exchange rate
d. Dirty float
3. A foreign debt crisis
a. Occurs when a speculative attack on the exchange value of a currency
results in a sharp depreciation in the value of the currency
b. Is a situation in which a country cannot service its debt obligations
c. Refers to a loss of confidence in the banking system that leads to a run on
banks as individuals withdraw their deposits
d. !s a situation in which consumer spending patterns significantly affect a
country"s balance of payments thereby affecting its currency
4. A _____ means the value of the currency is fixed relative to a reference
currency.
a. Fixed exchange rate
b. Floating exchange rate
c. Pegged exchange rate
d. Dynamic exchange rate
5. A fixed exchange rate regime
a. Leads to a situation where governments under political pressures
expand monetary supply too rapidly, causing unacceptably high price
inflation
b. Modeled along the lines of the #retton $oods system will not work
c. !s characteri%ed by speculation that adds to the uncertainty surrounding future
currency movements
d. &llows each country to choose its own inflation rate
6. A banking crisis
a. Refers to a loss of confidence in the baning system that leads to a run
on bans, as individuals withdraw their deposits
b. !s a situation in which a country cannot service its debt obligations
c. !s a situation in which consumer spending patterns significantly affect a
country"s balance of payments thereby affecting its currency
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Chapter 9
d. Occurs when a speculative attack on the exchange value of a currency
results in a sharp depreciation in the value of the currency
7. Bretton Woods set a restriction of _____ percent for devaluations of
currency, if a currency became too weak to defend, without permission from
the I!.
a. '(
b. )*
c. (
d. !"
8. Because of the long"term implications of volatile exchange rates firms
should
a. +et complete insurance coverage for exchange rates that might occur several
years in the future
b. #se the forward maret because it is a perfect predictor of future
exchange rates
c. Pursue strategies that reduce economic exposure
d. &void transactions that involve foreign currencies
9. #ong $ong has a _____ system of exchange rates.
a. $urrency board
b. Fixed
c. Floating
d. Pegged
10. In %&&', the highest percentage of I! members had a _____ exchange rate
policy.
a. %anaged float
b. ,urrency board
c. Free float
d. &d-ustable peg
11. In %&&', about a (uarter of the I! members had a _____ exchange rate
policy
a. Free float
b. ,urrency board
c. Fixed peg
d. &d-ustable peg
12. In a _____ exchange rate system, the value of a set of currencies is fixed
against each other at some mutually agreed on exchange rate.
a. Dirty
b. Fixed
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Chapter 9
c. Direct
d. Pegged
13. In )*+', the _____ formali,ed the floating exchange rate system that
followed the collapse of fixed exchange rate system.
a. &amaica 'greement
b. +old standard
c. Pla%a &ccord
d. .ouvre &ccord
14. In )**+ the I! agreed to provide the -hai government with .)+.% billion in
loans to help its shattered economy. While doing so, I! imposed all of the
following restrictions except
a. Interest rates were to be reduced
b. /everal state0owned businesses were to be privati%ed
c. 1he government was to increase taxes
d. Public spending needed to be cut
15. ost economists trace the break"up of the Bretton Woods fixed exchange
rate system, in )*+/, to
a. 1he rise of communism in 2astern 2urope
b. 1he economic integration movement sweeping $estern 2urope
c. (he macroeconomic policy pacage in the #.). during !*+, to !*+-
d. 1he increase in inflation and the worsening of the #ritish foreign trade position
16. 0egged exchange rates are popular among many of the world1s
a. )maller nations
b. .arge economies
c. Richest nations
d. &ll developed nations
17. -he I! has been critici,ed because of all of the following reasons, except
a. Its lax macroeconomic policies in the 'sian crisis were not well suited
to countries suffering from a private sector debt crisis with deflationary
undertones
b. !t has become too powerful for an institution that lacks any real mechanism
for accountability
c. !ts rescue efforts are exacerbating a problem known to economists as moral
ha%ard
d. !t has a 3one0si%e0fits0all3 approach to macroeconomic policy is inappropriate
for many countries
18. -he great strength claimed for the gold standard was that it contained a
powerful mechanism for achieving _____ by all countries.
a. 24ual tariff levels
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Chapter 9
b. !nterest rate parity
c. 2conomic stability
d. .alance/of/trade e0uilibrium
19. -he Bretton Woods I! Articles of Agreement, tried to imposes discipline
by adopting a _____ exchange rate system that was seen as a mechanism for
controlling inflation and imposing economic discipline on countries
a. Fixed
b. Floating
c. Pegged
d. Dirty float
20. -he 2nited 3tates returned to the gold standard in _____ after abandoning
the system at the start of World War I.
a. '56*
b. '7)(
c. !*!*
d. '78)
21. -he main elements of the )*+' 4amaica agreement include all of the
following except
a. 1otal annual !MF 4uotas were increased to 9:' billion
b. Floating rates were declared unacceptable
c. +old was abandoned as a reserve asset
d. !MF members were permitted to sell their own gold reserves at the market
price
22. -he Bretton Woods system of fixed exchange rates collapsed in
a. '7;8
b. '778
c. !*12
d. '758
23. -he gold standard had its origin in the use of _____ as a medium of
exchange, unit of account and store of value.
a. Paper currency
b. 1he <./. dollar
c. 3old coins
d. 1he #ritish pound
24. -he International bank for 5econstruction and 6evelopment is also known
as
a. 1he !MF
b. 1he 2uropean ,entral #ank
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Chapter 9
c. (he 4orld .an
d. 1he !nternational Development &gency
25. -he Bretton Woods Agreement could only work if the 2.3. had
a. .ow inflation and a current account deficit
b. Low inflation and no balance of payments deficit
c. =igh inflation and no balance of payments deficit
d. =igh inflation and a capital account surplus
26. -he institutional arrangement that governs exchange rates is known as the
a. International monetary system
b. !nternational monetary fund
c. !nternational financial regime
d. Financial control system
27. -he Bretton Woods agreement differed from the gold standard in that it
a. $as a rigid system of fixed exchange rates
b. $as a floating rate system
c. Incorporated both discipline and flexibility
d. $as based on the #ritish pound
28. -he use of the forward market and swaps to protect against foreign exchange
risk has increased markedly since
a. 1he .ouvre &ccord ended in '7;5
b. 1he breakdown of the gold standard
c. 1he end of the Pla%a &ccord
d. (he collapse of .retton 4oods system in !*12
29. -he great virtue claimed for a pegged exchange rate is that it
a. .eads to high inflation
b. .eads to devaluation
c. Imposes monetary discipline on a country
d. !ncreases fluctuations in exchange rates
30. -he )**7 exican currency crisis and the )**+ Asian financial crisis were
the result of all of the following except
a. & weak or poorly regulated banking system
b. 5igh balance of trade surplus
c. =igh inflation rates
d. 2xcessive foreign borrowings
31. -he amount of a currency need to purchase one ounce of gold under the gold
standard was known as
a. (he gold par value
b. Fixed gold rate
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Chapter 9
c. 1he pegged rate
d. 1he gold standard
32. -he _____ suggested that it would be desirable for most ma8or currencies to
appreciate relative to the dollar and signatories pledged to intervene in the
foreign exchange markets, selling dollars, to achieve this ob8ective.
a. .retton 4oods 'greement
b. Pla%a &ccord
c. .ouvre &ccord
d. +old /tandard
33. 2nder a pegged exchange rate regime, a country will peg the value of its
currency to
a. (hat of a ma6or currency
b. !ts foreign exchange reserves
c. !ts interest rates
d. Domestic inflation rate
34. 2nder the Bretton Woods, all countries fixed the value of their currency in
terms of
a. 1he euro
b. 1he #ritish pound
c. 1he <./. dollar
d. 3old
35. 2nder the gold standard, the 2.3. dollar could be converted into _____
grains of fine gold.
a. '6.8
b. '*.'
c. :5*
d. 72.22
36. 2nder the _____ of )*9+, the :roup of !ive agreed that exchange rates had
realigned sufficiently from earlier levels and pledged to support the stability
of exchange rates around their current levels by intervening in the foreign
exchange market when necessary.
a. #retton $oods &greement
b. Louvre 'ccord
c. Pla%a &ccord
d. >amaica &greement
37. 2nder a strict currency board system, interest rates
a. &re constant
b. Rarely move
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Chapter 9
c. Decline consistently
d. 'd6ust automatically
38. When a country commits itself to converting its domestic currency on
demand into another currency at a fixed exchange rate, the country has
adopted a _____ system of exchange rates.
a. Floating
b. $urrency board
c. Fixed
d. Pegged
39. When a speculative attack on the exchange value of a currency results in a
sharp depreciation in the value of a currency, a _____ has occurred.
a. #anking crisis
b. Foreign debt crisis
c. 2xchange crisis
d. $urrency crisis
40. When the foreign exchange market determines the relative value of a
currency, we say that the currency is adhering to a
a. Pegged exchange rate
b. ?olatile exchange rate
c. Fixed exchange rate
d. Floating exchange rate
41. Which of the following currencies is not part of a floating exchange rate
regime;
a. (he $hinese 8uan
b. 1he <./. dollar
c. 1he #ritish pound
d. 1he >apanese yen
42. When the central bank of a country intervenes in the foreign exchange
market to try to maintain the value of its currency if it depreciates too
rapidly against an important reference currency, the country is said to be
following a _____ system.
a. Floating exchange rate
b. ,lean float
c. Dirty float
d. Fixed exchange rate
43. When a country pegs its currencies to gold and guarantees convertibility, the
country is following the
a. Floating exchange rate system
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Chapter 9
b. #retton $oods system
c. 3old standard
d. Fixed exchange system
44. When the income a country1s residents earn from exports is e(ual to the
money its residents pay to other countries for imports, the country is said to
a. .e in balance/of/trade e0uilibrium
b. #e in capital account e4uilibrium
c. #e in current account e4uilibrium
d. =ave a managed float
45. _____ arises when people behave recklessly because they know they will be
saved if things go wrong.
a. Policy failure
b. & debt situation
c. Fire sale
d. %oral ha9ard
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