DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Why Try to Fix Exchange Rates?
181. The advantage of a system of fixed exchange rates over one where exchange rates are flexible is that
a.
the government gains more control over the economy.
b.
floating exchange rates impose risks on importers and exporters from unpredictable exchange rates.
c.
exchange controls become unnecessary.
d.
fiscal and monetary policy can focus more on domestic conditions.
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
Why Try to Fix Exchange Rates?
182. An important effect of foreign currency speculators is that
a.
they have consistently lost money and have left the market.
b.
they have pushed exchange rates to wider extremes than most economists predicted.
c.
they actually limit the volatility of exchange rate movements.
d.
they have had no effect at all on exchange rate volatility.
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
Why Try to Fix Exchange Rates?
183. After being introduced in 1999, the euro
a.
increased in value through 2008.
b.
decreased in value through 2008.
c.
increased in value through 2000 but then decreased in value through 2008.
d.
decreased in value through 2000 but then increased in value through 2008.
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
The Current “Nonsystem”
184. Speculators play an important role in a system of floating exchange rates because
a.
b.
c.
d.
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
The Current “Nonsystem”
185. International trade under a floating exchange rate system
a.
has been trouble-free owing to the stabilizing role of speculators in the currency markets.
b.
has suffered from so many problems that the volume of trade has declined significantly.
c.
exposes businesses to unavoidable risks when exchange rates change.
d.
has been subject to wild runs on currencies that were on the verge of devaluation.
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
The Current “Nonsystem”
186. The current exchange rate system for most currencies is described most accurately as one of
a.
fixed exchange rates.
b.
freely flexible exchange rates.
c.
gold standard rates.
d.
dirty or managed floating.
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
The Current “Nonsystem”
187. The current role of the International Monetary Fund is one of
a.
supervising a system of fixed exchange rates.
b.
providing assistance to countries with currency or debt problems.
c.
setting exchange rates based on a gold exchange standard.
d.
acting as a lender of last resort to central banks.
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
The Current “Nonsystem”
188. IMF advice to countries such as Russia and Argentina that suffer from exchange rates crises often requires these
countries to adopt
a.
fixed exchange rates.
b.
expansionary monetary policies.
c.
contractionary monetary policies.
d.
state ownership of industry.
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
The Current “Nonsystem”
189. For developing countries, one of the dangers inherent in the inflows of capital that finance investment is
a.
increasing unemployment that accompanies foreign investment.
b.
rapid outflows of funds that put pressure on exchange rates.
c.
the deflation that accompanies inflows of foreign capital.
d.
the inflation that accompanies outflows of foreign capital.
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
The Current “Nonsystem”
190. The principal result of the rising value of the U.S. dollar in the mid-1990s was the
a.
lower foreign inflation.
b.
lower U.S. interest rates.
c.
opportunities for currency speculation.
d.
attractive investments in U.S. technology.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
The Current “Nonsystem”
191. The principal result of the rising value of the U.S. dollar in the mid-1990s was a(n)
a.
balance of payments deficit.
b.
balance of payments surplus.
c.
increase in the rate of inflation.
d.
increase in the unemployment rate.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
International trade and finance
The Current “Nonsystem”
192. In the current international monetary system, what is the role for gold?
a.
The system is a gold-exchange standard, based on a fixed value for a key currency.
b.
Gold backs each currency, and therefore, the system as a whole.
c.
It serves as the principal reserve asset.
d.
It has no role.
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
The Current “Nonsystem”
193. The decline in the value of the dollar from 1985 to 1988 was beneficial to
a.
American tourists travelling to Europe.
b.
firms importing goods into America.
c.
American exporting businesses.
d.
foreigners holding U.S. government bonds.
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
The Current “Nonsystem”
194. Which of the following had prompted the Chinese authorities to stand ready to buy or sell dollars steadily and in
large volume?
a.
Huge current account deficit
b.
Currency pegged to the dollar
c.
Floating rate policy
d.
Adherence to the old gold standard
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
The Current “Nonsystem”
195. Lately, the Chinese authorities seem to be backing away from ____ and the Yuan has ____ relative to the dollar.
a.
managed-float; devalued
b.
currency peg; depreciated
c.
floating rate; revalued
d.
currency peg; appreciated
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
The Current “Nonsystem”
196. The term “dirty float” is used to describe a
a.
black market in foreign currencies.
b.
floating currency that is “managed” by central bank authorities.
c.
nation that switches from free to fixed exchange rates.
d.
currency system used only in inflationary periods.
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
The Current “Nonsystem”
197. Because central banks intervene in currency markets, the term ____ has been used to describe the system.
a.
planned float
b.
controlled float
c.
flexible
d.
dirty float
Moderate
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
The Current “Nonsystem”
198. As the U.S. dollar’s foreign exchange value falls, we should expect to see
a.
more Americans travelling abroad.
b.
American import levels rising.
c.
more foreigners visiting the United States.
d.
increased foreign investment by American firms.
c
Moderate
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
The Current “Nonsystem”
199. The principal goal of the Treaty of Maastricht was the creation of a
a.
fixed exchange rate system.
b.
floating exchange rate system.
c.
gold-exchange system.
d.
monetary union.
Easy
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
The Current “Nonsystem”
200. The main component of the monetary union created by the Treaty of Maastricht is a(n)
a.
single currency.
b.
gold standard.
c.
bilateral barter system of currencies.
d.
unified stock market.
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
The Current “Nonsystem”
201. One of the problems that monetary unions eliminate is
a.
inflationary gaps.
b.
recessionary gaps.
c.
exchange rate instability.
d.
business cycles.
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
202. The recent experience in Greece, Portugal, and Ireland make the euro
a.
seem very unlikely to fail because of decreasing debt levels.
b.
seem very unlikely to fail because of increasing interest rates.
c.
seem somewhat likely to fail because of increasing debt levels.
d.
seem somewhat likely to fail because of increasing interest rates.
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
The Current “Nonsystem”
203. Countries like Malaysia and Thailand that tried to maintain overvalued currencies in the late 1990s inevitably faced
increased
a.
balance of payments surpluses.
b.
runs on their currencies.
c.
balance of payments deficits.
d.
both b and c.
Moderate
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
The Current “Nonsystem”
204. Which of the following countries has gone so far as to adopt the U.S. dollar as its domestic currency?
a.
Panama
b.
Ecuador
c.
Zimbabwe
d.
all of the above
Moderate
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
The Current “Nonsystem”
205. In a floating exchange market, the exchange rate for pesos and yen will not change when:
a.
the yen trades at a rate below the equilibrium level
b.
the peso trades at a rate above the equilibrium level
c.
the currencies trade at the equilibrium exchange rate
d.
it will change in all of these situations
c
Moderate
DISC: Supply and demand
United States – BPROG: Analytic
Supply and demand
Exchange Rate Determination in a Free Market
206. Under the Bretton Woods system, devaluation was:
a.
normal
b.
routine
c.
rare
d.
a last resort
Moderate
DISC: Markets, market failure, a – DISC: Markets, market failure, and externalities
United States – BPROG: Analytic
Markets, market failure, and ext – Markets, market failure, and externalities
Adjustment Mechanisms under Fixed Exchange Rates
207. Explain three factors that would cause the dollar to appreciate.
decrease demand for imports.
Easy
DISC: International trade and fi – DISC: International trade and finance
United States – BPROG: Analytic
International trade and finance
What Are Exchange Rates?
208. Define the following terms and explain their importance to the study of macroeconomics:
a.
exchange rate
b.
depreciation
c.
devaluation
d.
fixed exchange rates
persistent balance of payments imbalances.
Easy
United States – BPROG: Analytic
The study of economics, and defi – The study of economics, and definitions of economics
What Are Exchange Rates?
209. In each of the following scenarios, explain why the euro will appreciate or depreciate in a system of floating
exchange rates. A) A recession in Germany cuts German purchases of American goods. B) American investors are
attracted by prospects for profit on the Frankfurt Stock Exchange. C) Interest rates on government bonds rise in the U.S.
but remain stable in Germany.
210. Assume that an economic boom occurs in the United States, so that the United States has a much higher growth rate
than other nations. What will happen to the exchange rate of the U.S. dollar?
211. Suppose a Lexus LS400 and a Mercedes C300 are considered to be of equivalent value. The Lexus sells for
6,000,000 Japanese yen in Tokyo and the Mercedes sells for 50,000 euros in Stuttgart. Using the purchasing power parity
theory, explain the exchange rate between the yen and the euro.
212. How did the gold standard help countries rectify the balance of payment problem? What were the problems
associated with the gold standard?
213. Discuss the problems associated with the Bretton Woods system.
214. What is the euro and why has it been created? How has its value changed relative to the U.S. dollar since its
inception?
215. Explain the role of the International Monetary Fund. Discuss the criticisms leveled against this agency in the wake of
economic crises of the 1990s.
216. Differentiate between the current account balance and the capital account balance.
217. In the spring of 2002, Argentina was forced to devalue its peso and disband its currency board that was responsible
for the fixed exchange rate between the peso and the U.S. dollar. Explain the origin of this crisis and the painful remedies
that Argentina has had to endure.
218. Why is the international financial system today often called a “nonsystem?”