 |
| 1 | |
A pegged exchange rate means the value of the currency is fixed relative to a reference currency, such as the U.S. dollar. |
| | A) | True |
| | B) | False |
|
|
|
| 2 | |
"Dirty float" is a negative term first used by protesters in Seattle to refer to the undue influence of the MNE in currency transactions. |
| | A) | True |
| | B) | False |
|
|
|
| 3 | |
When the income earned by the residents of a country from exports is equal to the money that is paid for imports, a country is said to be in balance of payments equilibrium. |
| | A) | True |
| | B) | False |
|
|
|
| 4 | |
The frequency of government intervention in the foreign exchange market explains why the current system is sometimes thought of as a managed-float system. |
| | A) | True |
| | B) | False |
|
|
|
| 5 | |
It seems to be in the interest of international business to promote an international monetary system that minimizes volatile exchange rate movements when those movements are unrelated to long-run economic fundamentals. |
| | A) | True |
| | B) | False |
|
|
|
| 6 | |
The exchange rate system under the Bretton Woods agreement was a ________ regime. |
| | A) | fixed |
| | B) | floating |
| | C) | pegged |
| | D) | dirty float |
|
|
|
| 7 | |
The key strength of the gold standard was |
| | A) | that it maintained a managed float system |
| | B) | that it maintained a dirty float system |
| | C) | that it was a mechanism for achieving balance of payments equilibrium by all countries |
| | D) | that all countries of the world maintained a stable currency |
|
|
|
| 8 | |
The Bretton Woods system, designed at the height of World War II established two multinational organizations that would have major impacts throughout the second half of the 20th Century and beyond. These organizations were: |
| | A) | The United Nations and World Bank |
| | B) | The United Nations and the International Monetary Fund |
| | C) | The Bank for International Settlements and the International Monetary Fund |
| | D) | The International Bank for Reconstruction and Development and the International Monetary Fund |
|
|
|
| 9 | |
Under a fixed exchange rate system, a country that increases its money supply would see its inflation rate _______ and its trade deficit _______. |
| | A) | rise, shrink |
| | B) | rise, widen |
| | C) | fall, shrink |
| | D) | fall, widen |
|
|
|
| 10 | |
The efforts of the World Bank to reconstruct the war torn economies of Europe at the conclusion of World War II were curtailed by |
| | A) | the IMF |
| | B) | the UN |
| | C) | the International Bank for Reconstruction and Development |
| | D) | the Marshall Plan |
|
|
|
| 11 | |
Since 1960, the World Bank has focused on the following with the exception of: |
| | A) | providing loans and grants to the poorest of countries through the International Development Association. |
| | B) | assisting the International Monetary Fund in stabilizing economies as a kind of central banker. |
| | C) | lending in support of infrastructure projects, agriculture, education, population control and urban development. |
| | D) | providing low-interest loans to risky customers, such as the governments of underdeveloped nations. |
|
|
|
| 12 | |
The fixed exchange rates established at Bretton Woods until the system finally collapsed in 1973. Most economists trace the break-up of that system to: |
| | A) | the long-standing efforts Communist countries to undermine the Western financial systems. |
| | B) | US efforts to support an unpopular war and to expand social welfare programs without raising taxes. |
| | C) | a world-wide shortage of gold. |
| | D) | British concerns about national sovereignty. |
|
|
|
| 13 | |
As compared to how they were between 1945 and 1973, exchange rates today are |
| | A) | slightly more volatile |
| | B) | much more volatile |
| | C) | less volatile |
| | D) | in equilibrium |
|
|
|
| 14 | |
The case for floating exchange rates includes______________ and ___________. |
| | A) | national sovereignty; trade balance adjustments |
| | B) | the need to use gold in industrial applications; trade balance adjustments |
| | C) | monetary policy autonomy; the entrepreneurial nature of foreign exchange banks |
| | D) | monetary policy autonomy; trade balance adjustments |
|
|
|
| 15 | |
The case for fixed exchange rates includes all but: |
| | A) | concerns that the original Bretton Woods arrangements worked well and should be reestablished using a strong US dollar. |
| | B) | concerns about the impact of speculation on exchange rates. |
| | C) | concerns about the impact of uncertainty on business planning. |
| | D) | concerns about trade balance adjustments. |
|
|
|
| 16 | |
There are many different exchange rate regimes among the IMF members. The correct frequency of preferred regimes from most often used to least often used is: |
| | A) | managed float, no separate tender, adjustable peg. |
| | B) | fixed peg, adjustable peg, free float. |
| | C) | free float, management float, currency board. |
| | D) | managed float, adjustable peg, no separate tender. |
|
|
|
| 17 | |
According to IMF research, countries with a pegged exchange rate system had an average annual inflation rate that is ________ as compared to countries following a floating exchange rate system. |
| | A) | a little higher |
| | B) | significantly higher |
| | C) | about the same |
| | D) | lower |
|
|
|
| 18 | |
After the initial collapse of the Bretton Woods system in 1973, the IMF has adapted to serve the international monetary system by: |
| | A) | continuing to lend money to industrialized nations who prefer the IMF to private sources. |
| | B) | working with the World Bank to fund development projects with low-interest loans. |
| | C) | helping to meet crises in nations experiencing financial difficulties. |
| | D) | limiting its role to the essential task of providing financial information to central banks of member nations. |
|
|
|
| 19 | |
Which of the following is not a cause for banking, foreign debt, and/or currency crises? |
| | A) | low relative price inflation |
| | B) | a widening current account deficit |
| | C) | excessive expansion of domestic borrowing |
| | D) | asset price inflation |
|
|
|
| 20 | |
In the mid-1990s Mexico has a currency crisis, and the IMF intervened. As a result, |
| | A) | due to the strict IMF conditions, Mexico went into a prolonged recession which still affects the country. |
| | B) | the IMF acted alone, rejecting offers of help from the US government and the Bank for International Settlements. |
| | C) | the intervention was relatively successful and Mexico has repaid the $20 billion borrowed from the US government. |
| | D) | the speculations from foreign exchange traders had no impact on the crisis. |
|
|
|
| 21 | |
Which of the following is not a factor in the Asian currency crisis? |
| | A) | the debt bomb |
| | B) | decreasing capacity |
| | C) | expanding imports |
| | D) | the investment boom |
|
|
|
| 22 | |
______ arises when people behave recklessly because they know they will be saved if things go wrong. |
| | A) | bandwagon effects |
| | B) | moral hazard |
| | C) | default effects |
| | D) | Chapter 23 |
|
|
|
| 23 | |
The IMF has received criticism |
| | A) | revolving around its lack of accountability. |
| | B) | focusing on its failure to respond to the high value of the dollar. |
| | C) | for its inability to work hand-in-hand with the World Bank. |
| | D) | charging that the IMF has emphasized developing nations at the expense of developed countries. |
|
|
|
| 24 | |
Currency management requires international businesses to recognize the foreign exchange market does not always work as depicted in economic theories. All of the following are true except: |
| | A) | PPP has theory did not predict the relationship between foreign exchange and inflation during the 1980s and 1990s. |
| | B) | The current system is a mixed system in which speculation and government intervention can drive the foreign exchange market. |
| | C) | The current system of world-wide buying and selling has driven most of the volatility out of the system. |
| | D) | The creation and use of new financial instruments has increased markedly since the collapse of the Bretton Woods system. |
|
|
|
| 25 | |
A firm that wants to maintain strategic flexibility and hedge against currency fluctuations can |
| | A) | disperse production to different locations in the world |
| | B) | narrow its product line |
| | C) | establish a central exporting operation in a single location |
| | D) | peg its currency |
|
|
.