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Chapter 6
International Monetary Relations
Multiple-Choice
1) The U.S. balance of payments deficit in the 1950s and 1960s resulted
largely from
a) the growing U.S. services trade deficit.
b) the growing U.S. current account deficit.
c) the growing U.S. financial account deficit.
d) the growing U.S. merchandise trade deficit.
2) The Triffin Dilemma in regard to reserve assets refers to conflict between
a) the need to devalue the U.S. dollar, and the inability to do so.
b) the liquidity and adjustment functions.
c) the confidence and adjustment functions.
d) the liquidity and confidence functions.
3) SDRs
a) are allocated mainly to countries that have serious balance of
payments problems.
b) account for a large share of global reserve assets today.
d) have a value determined by a basket of 3 currencies today.
-off between:
a) pegged exchange rates and policy autonomy.
b) pegged exchange rates and private capital mobility.
c) private capital mobility and policy autonomy.
d) none of the above.
5) On August 15, 1971 President Richard Nixon
a) greatly restricted the official convertibility of the dollar into gold.
b) devalued the U.S. dollar in relation to other currencies.
c) imposed a tariff surcharge on all dutiable imports.
d) began to float the dollar in relation to gold and other currencies.
6) The financial account includes
a) the capital account.
b) secondary income.
c) portfolio investment.
d) services trade.
7) Orthodox liberals advise governments to deal with balance of payments
deficits with
a) tariffs.
b) deflationary fiscal policies.
c) currency devaluation.
d) financing.
8) When a state lowers the official value of its currency, it is engaging in
a) depreciation.
b) appreciation.
c) revaluation.
d) devaluation.
9) The type of monetary regime most closely associated with the embedded
liberal compromise was
a) a managed floating regime.
b) a gold exchange standard.
c) a gold standard.
d) a free floating regime.
10) Which country has not appointed its own IMF executive director in
recent years?
a) India
b) Russia
c) Saudi Arabia
d) China
11) Eurocurrencies are
a) national currencies located in banks outside the home country.
b) held by countries that have replaced their national currencies with
the euro.
c) national currencies that must be held in European banks.
d) national currencies closely linked with the formation of the
European Union.
12) The current account includes
a) direct investment assets.
b) monetary reserves.
c) investment liabilities.
d) primary income.
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13) In the postwar period, the United States first had a balance of trade
deficit in
a) 1971.
b) 1960.
c) 1973.
d) 1950.
14) IMF members agreed to create SDRs in 1969 with the approval of
a) the G5.
b) the G7.
c) the G10.
d) the G20.
15) In the interwar period (between World Wars I and II), the world had
a) a gold standard and floating exchange rates.
b) a gold exchange standard and floating exchange rates.
c) only floating exchange rates.
d) only a gold standard.
True-False
1) Under the current monetary regime, volatility of currency rates is a
greater problem than misalignment of currency rates.
2) The Group of 24 includes finance ministers or central bank governors
from 24 major DCs and LDCs.
3) The Triffin Dilemma refers to the problem that the liquidity and
adjustment functions of the key currency in a monetary regime eventually
come into conflict.
4) The first time the United States had a balance of payments deficit in the
post-World War II period was in 1950.
5) The financial account of the balance of payments includes direct
investment, portfolio investment, and primary income.
6) Depreciation refers to the market-driven dec
7) IMF votes on most important decisions such as changing the IMF quotas
give an effective veto to the United States, China, and Japan.
Fill in the Blank
1) A government uses ___________________ to deal with a balance of
payments deficit by lowering government spending and raising taxes.
2) ______________ refers to the ease with which an asset can be used in
making payments.
3) In the ___________________ regime, central banks held their reserves in
gold and major currencies, and each central bank fixed its currency
exchange rate to a key currency with a fixed gold price.
4) The IMF ensures that borrowers must agree to adopt specific economic
policies through ______________ on its loans.
5) The refers to the fact that the liquidity and confidence
functions of a key currency can come into conflict if the monetary regime
depends only one key currency.
6) National currencies traded and deposited in banks outside the home
country are called ________________.
7) The records the debit and credit transactions that
residents, firms, and governments have with the rest of the world over a one–
year period.
Essay
1) Are the Japanese yen, the euro, the Chinese renminbi, and the SDR likely
to pose a challenge to the U.S. dollar as the key international currency?
Explain your answers.
2) Do you think the U.S. deficit and foreign debt problems pose an economic
and geopolitical threat to the country? Why does the United States have
3) Why was the euro zone formed, and what are its strong and weak points?
4) What options does a country have in dealing with a balance of payments
deficit, and what are the preferred options of the three main theoretical
perspectives?
5) Why was the Bretton Woods monetary regime unsustainable, and what
role did the Triffin Dilemma and the eurocurrency market have in the
breakdown of the regime?
6) What are the three types of floating in the current monetary regime?
Which of these types of floating does the IMF view as acceptable, and
unacceptable and why?
7) What are the volatility and misalignment of currencies, and how serious
are these problems in the current monetary regime?
Pages 152-153
8 does it limit the changes that IMF
members can make in the current monetary regime?
9) How much influence have DCs and LDCs had in IMF decision-making?
Do you think this is likely to change in the future and why?
10) What
How did the shift from U.S. to multilateral management, and from pegged to
floating exchange rates affect the role of the IMF, the G10, and the G7 in the
global monetary regime?