CHAPTER 29
THE INTERNATIONAL MONETARY SYSTEM:
Past, Present, and Future
B. Multiple-Choice Questions
9. In its lending to member countries, the International Monetary Fund (IMF)
a. concentrates on long-term development loans and does not engage in short-term
balance-of-payments loans.
10. Two of the “convergence criteria” pertaining to initial membership in the EMU were that
a country’s ratio of government debt to GDP must be __________ and that a country’s
ratio of government budget deficit to GDP must __________.
11. Under the international monetary system as it actually operated between 1947 and 1971,
the emergence of seemingly chronic deficits and surpluses in various countries’ balance–
of- payments positions (i.e., deficits and surpluses which did not seem to get eliminated)
was called
a. the liquidity problem.
12. Under the Bretton Woods system set up at the end of World War II, exchange rates were
a. absolutely fixed, i.e., no deviations from parity were permitted.
13. In the current exchange rate arrangements of IMF members,
d. no developing country allows its currency to “float.”
14. In the current international monetary system, countries
a. must keep their currency values absolutely fixed.
15. At the present time in the international monetary system,
16. In the economic and monetary union in Europe (EMU), the member countries
a. tie their currencies to the U.S. dollar.
17. The event that essentially led to the end of the Bretton Woods system was
18. When a country joins the International Monetary Fund, the country is assigned a quota, or
subscription fee. At the present time, this quota is paid
19. The “Asian crisis” of 1997-1998 importantly involved movement of short-term financial
capital __________ countries such as Thailand and Malaysia, with a consequent
__________ of their currencies, which in turn caused __________ in the trade balances
of other countries of the world.
20. In the Williamson “target zone” plan, the major industrialized countries would negotiate
mutually consistent __________ target exchange rates, and there would be __________
deviation permitted from these target rates.
21. The post-Bretton Woods international monetary system is generally thought to have been
characterized by all except one of the following features. Which one does NOT seem to
have been a characteristic of the system?
22. Suppose that, using a system of multiple exchange rates, India wishes to discourage
investors from sending their funds abroad relative to employing the funds in production
for export. If the exchange rate for exports were set at 50 Indian rupees = $1.00, then
which one of the following exchange rates for capital transactions would potentially be
appropriate for implementing the strategy?
23. The original monetary unit in the European monetary system (EMS) in which currencies’
parity values were defined was the
24. In the Bretton Woods international monetary system, a country’s currency, unless its par
value or parity value were officially changed, could not deviate more than __________
from its par value or parity value. If the country’s currency depreciated to its low point in
this range, central banks needed to __________ the currency in the exchange markets in
order to keep the currency’s value within the specified range.
25. If a country ties its currency to a specific foreign currency and allows its holdings of that
currency to govern the country’s money supply, this arrangement is known as a
26. Under the original Bretton Woods agreement,
27. In a target zone system in which the money supply is to be varied in response to
exchange
rate variations as the exchange rate hits the ceiling or floor, if a country’s exchange rate
(units of home currency per unit of foreign currency) hits the ceiling, then the monetary
authorities would be required to __________ the money supply; this change in the money
supply would be carried out in order to __________ the value of the home currency.
28. If a country’s currency’s external value is tied or pegged to the currency values of the
country’s leading trading partners, this arrangement is known as a