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27) Prior to the introduction of the euro, many EU countries participated in a ________ system, in
which the values of a set of currencies are fixed against each other at some mutually agreed upon
exchange rate.
A) floating exchange rate
B) currency board
C) fixed exchange rate
D) pegged exchange rate
28) International Monetary Fund members were ________ in the Jamaica agreement.
A) not permitted to sell their own gold reserves
B) permitted to sell their own gold reserves, but only at the price set by IMF
C) required to hold their gold reserves in escrow
D) permitted to sell their own gold reserves at the market price
29) The value of U.S. dollar increased between 1980 and 1985
A) despite running a growing trade deficit.
B) despite exporting substantially more than it imported.
C) because of a growing trade surplus.
D) because the country's status as a world financial leader was becoming apparent.
30) Which of the following is a factor that initiated the collapse of the fixed exchange rate system?
A) worsening of Great Britain's balance of trade
B) recession in third world countries
C) price inflation in Europe
D) worsening of U.S. foreign trade position
31) Which of the following changes were made to the International Monetary Fund's Articles of
Agreement in the Jamaica agreement?
A) IMF members were permitted to use the U.S. dollar as the convertible currency.
B) Gold was declared as a formal reserve asset for IMF members.
C) IMF members were permitted to sell their gold reserves at the market price.
D) IMF members were restricted from entering the foreign exchange market.
32) ________ exchange rates were declared as acceptable in the Jamaica agreement of the
International Monetary Fund.
A) Pegged
B) Fixed
C) Floating
D) Gold standard
33) The United States had large and growing trade deficits between 1980 and 1985. Despite this,
the value of the U.S. dollar rose during this period. Which of the following is a factor that caused
this occurrence?
A) The United States attracted heavy inflows of capital from foreign investors during this period.
B) Banks in the United States offered low interest rates to investors during this period.
C) Markets across the world witnessed strong economies during this period.
D) Developed countries in Europe maintained trade equilibrium and supplied goods to
underdeveloped countries.
34) Which of the following is the reason the current foreign exchange system is sometimes thought
of as a managed-float system?
A) The exchange rates of a currency are determined by market forces.
B) Governments intervene frequently in the foreign exchange market.
C) Major currencies are allowed to freely float against each other.
D) Countries use a reference currency to estimate the value of their currencies.
35) The rise in the value of the dollar between 1985 and 1988
A) gave U.S. goods a competitive advantage over others.
B) made imports relatively cheap.
C) gave U.S. goods a comparative advantage over others.
D) made imports expensive.
36) The international monetary system refers to the institutional arrangements that govern
A) microeconomic parameters.
B) exchange rates.
C) gross domestic produce.
D) foreign direct investment.
37) When the foreign exchange market determines the relative value of a currency, we say that the
country is adhering to a ________ regime.
A) currency board exchange
B) pegged exchange rate
C) fixed exchange rate
D) floating exchange rate
38) Pegged exchange rate means that the value of a currency is
A) fixed against other currencies based on an agreement.
B) not determined by free market forces.
C) fixed relative to a reference currency.
D) independent of the valuations of other currencies.
39) A country wanted to hold its currency against an important reference currency without a
formal pegged rate. This is known as
A) a monetary run.
B) a currency flip.
C) an unpegged rate.
D) a dirty float.
40) After World War II, the world's major industrial nations arranged their currencies against each
other at a mutually agreed on exchange rate. This is an example of a ________ system.
A) fixed exchange rate
B) dirty float exchange
C) pegged exchange rate
D) floating exchange rate
41) Which of the following statements is true of the gold standard?
A) The gold standard was adopted only by the smaller nations of the world.
B) Currencies were pegged to gold under the gold standard.
C) Convertibility to gold was not guaranteed under the gold standard.
D) The gold standard was not helpful in maintaining balance-of-trade equilibrium.
42) Gold par value refers to the
A) ratio of the price of gold in a currency to the price of gold in U.S. dollars.
B) amount of a currency needed to purchase one ounce of gold.
C) ratio of price of gold in a currency to the price of gold in euros.
D) amount of gold required to equal the reference currency that a nation is using.
43) A country is said to be in balance-of-trade equilibrium when
A) it has the potential to produce all goods that its residents want without engaging in foreign
trade.
B) the income its residents earn from exports is equal to the money its residents pay for imports.
C) the country imports all goods that its residents want by engaging in foreign trade.
D) it has the potential to balance the production and procurement of the basic amenities that it
needs.
44) A country's trade balance is in surplus when
A) its exports are more than its imports.
B) it experiences negative inflation.
C) its exports equal the imports.
D) the prices of commodities are low in the country.
45) Which of the following is an advantage of using the gold standard?
A) The standard makes sure that goods are not priced out from markets due to inflation.
B) The standard does not require a commitment from a nation to maintain its currency's value.
C) The standard effectively prevents the devaluation of currencies across the world.
D) The standard contains a powerful mechanism for achieving balance-of-trade equilibrium by all
countries.
46) International Development Association loans
A) receive direct funding from the World Bank.
B) must be countersigned by a partnering, wealthy country such as the United States, Japan, or
Germany.
C) are funded through subscriptions from wealthy members.
D) receive direct funding from the International Monetary Fund.
