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c11 Key
1. The international monetary system refers to a system to regulate fixed exchange rates before the introduction
of the euro.
2. When the foreign exchange market determines the relative value of a currency, we say that the country is
adhering to a pegged exchange rate regime.
3. A pegged exchange rate means the value of the currency is fixed relative to a reference currency, and then the
exchange rate between that currency and other currencies is determined by the reference currency exchange
rate.
4. In a fixed exchange rate system, the central bank of a country will intervene in the foreign exchange market
to try to maintain the value of its currency if it depreciates too rapidly against an important reference currency.
5. Given a common gold standard, the value of any currency in units of any other currency (the exchange rate)
was easy to determine.
6. A country is said to be in balance-of-trade equilibrium when the income its residents earn from exports is
greater than the money its residents pay to other countries for imports.
7. Under the gold standard, a country in balance-of-trade equilibrium will experience a net inflow of gold from
other countries.
8. If more dollars are needed to buy an ounce of gold than before, the implication is that the dollar is worth
more.
9. The major problem with the gold standard was that no multinational institution could stop countries from
engaging in competitive devaluations.
10. According to the Bretton Woods agreement, if a currency became too weak to defend, a devaluation of up to
10 percent would be allowed without any formal approval by the International Monetary Fund.
11. The architects of the Bretton Woods agreement wanted to avoid high unemployment, so they built the fixed
exchange rate system to be highly inflexible.
12. When the Bretton Woods participants established the World Bank, the need to lend money to third-world
nations was foremost in their minds.
13. Under the International Bank for Reconstruction and Development scheme, the World Bank offers
low-interest loans to risky customers whose credit rating is often poor.
14. As the only currency that could be converted into gold, the British pound occupied a central place in the
fixed exchange rate system.
15. Under the fixed exchange rate system, the dollar could be devalued only if all countries agreed to
simultaneously revalue against the dollar.
16. The Bretton Woods system could work only as long as the U.S. inflation rate remained low and the United
States did not run a balance-of-payments deficit.
17. Since March 1973, currency exchange rates have become less volatile and more predictable than they were
between 1945 and 1973.
18. Under a floating exchange rate regime, market forces have produced a volatile dollar exchange rate.
19. Under a floating exchange rate system, a country's ability to expand or contract its money supply as it sees
fit is limited by the need to maintain exchange rate parity.
20. Under a pegged exchange rate regime, a country will peg the value of its currency to that of a major
currency, so that if the reference currency rises in value, its own currency rises too.
21. The disadvantage of a pegged exchange rate regime is that it aggravates inflationary pressures in a country.
22. It can be very difficult for a small country to maintain a peg against another currency if capital is flowing
out of the country and foreign exchange traders are speculating against the currency.
23. A country that introduces a currency board commits itself to converting its domestic currency on demand
into another currency at a fixed exchange rate.
24. Under a currency board system, the government has the absolute authority to set interest rates.
25. The activities of the International Monetary Fund have declined after the collapse of the Bretton Woods
system in 1973.
26. The International Monetary Fund can force countries to adopt the policies required to correct economic
mismanagement.
27. Some IMF economists argue that higher inflation rates might be good if the consequence is greater growth
in aggregate demand.
28. The forward exchange market is an accurate predictor of future exchange rates.
29. In the face of unpredictable exchange rate movements, a firm should pursue strategies that reduce its
economic exposure.
30. Contracting out manufacturing may be more appropriate for high-value-added manufacturing.
31. Which of the following refers to the institutional arrangements that govern exchange rates?
32. Which of the following refers to a system under which the exchange rate for converting one currency into
another is continuously adjusted depending on the laws of supply and demand?
33. In which kind of exchange rate is the value of the currency fixed relative to a reference currency, and then
the exchange rate between that currency and other currencies is determined by the reference currency exchange
rate?
34. Many of the world's developing nations peg their currencies, primarily to the:
35. In a floating exchange rate, the relative value of a currency:
36. Which of the following refers to a system under which a country's currency is nominally allowed to float
freely against other currencies, but in which the government will intervene, buying and selling currency, if it
believes that the currency has deviated too far from its fair value?
37. Which of the following statements is true about the various exchange rate systems?
38. In which kind of exchange rate system are the values of a set of currencies set against each other at some
mutually agreed on exchange rate?
39. The 1944 Bretton Woods conference created two major international institutions that play a role in the
international monetary system—the International Monetary Fund (IMF) and the:
40. Which of the following refers to the gold standard?
41. Which of the following is a reason for the emergence of the gold standard?
42. In terms of the gold standard, the amount of currency needed to purchase one ounce of gold was referred to
as the:
43. Which of the following describes a country when the income its residents earn from exports is equal to the
money its residents pay to other countries for imports?
44. Which of the following is a great strength of the gold standard?
45. Which of the following statements is true about the gold standard?
46. In the 1930s, countries were devaluing their currencies at will in order to boost exports, thus shattering
confidence in the:
47. Certovia and Norkland are two neighboring countries that actively trade goods and services with each other.
Under the gold standard, there will be a net flow of gold from Norkland to Certovia when:
48. Argonia Republic is in trade surplus with Kamboly. Under the gold standard, which of the following
statements is true until a balance-of-trade equilibrium is achieved?
49. Which of the following was a reason that led to the collapse of the gold standard in 1939?
