Question 1

Suppose that the British pound is pegged to gold at £6 per ounce,whereas one ounce of gold is worth €12.Under the gold standard,any misalignment of the exchange rate will be automatically corrected by cross border flows of gold.Calculate the possible gains for buying €1,000,if the British pound becomes undervalued and trades for €1.80.(Assume zero shipping costs) . (Hint: Gold is first purchased using the devalued British pound from the Bank of England,then shipped to France and sold for €1,000 to the Bank of France) .

Accepted Answer

A)  £55.56
B)  £65.56
C)  £75.56
D)  £85.56E) C) and D)
F) A) and C)

Question 2

Once capital markets are integrated,it is difficult for a country to maintain a fixed exchange rate.Why?

Accepted Answer

A)  The market forces may be stronger than the exchange rate intervention that the government can muster.
B)  Portfolio managers will not invest in countries with fixed exchange rates.
C)  Because of the Tobin Tax.
D)  None of the aboveE) A) and B)
F) A) and C)

Question 3

Under the Bretton Woods system

Accepted Answer

A)  there was an explicit set of rules about the conduct of international monetary policies.
B)  each country was responsible for maintaining its exchange rate within 1 percent of the adopted par value by buying or selling foreign exchanges as necessary.
C)  the U.S.dollar was the only currency that was fully convertible to gold.
D)  all of the aboveE) B) and C)
F) A) and D)

Question 4

One potential drawback of the gold standard is that

Accepted Answer

A)  the world economy can be subject to deflationary pressure due to the limited supply of monetary gold.
B)  the world economy can be subject to inflationary pressure without changes in the supply of monetary gold.
C)  gold is scarce.
D)  all of the aboveE) None of the above
F) B) and D)

Question 5

Under a flexible exchange rate regime,governments can retain monetary policy independence because the external balance will be achieved by

Accepted Answer

A)  the exchange rate adjustments.
B)  the price-specie flow mechanism.
C)  the Triffin paradox.
D)  none of the aboveE) C) and D)
F) A) and B)

Question 6

The majority of countries got off gold in 1914 when

Accepted Answer

A)  the American Civil War ended.
B)  World War I broke out.
C)  World War II started.
D)  none of the aboveE) All of the above
F) B) and C)

Question 7

The price-specie-flow mechanism will work only if governments are willing to play by the rules of the game by letting the money stock rise and fall as gold flows in and out.Once the government demonetizes (neutralizes) gold,the mechanism will break down.In addition,the effectiveness of the mechanism depends on

Accepted Answer

A)  the income elasticity of the demand for imports.
B)  the price elasticity of the demand for imports.
C)  the price elasticity of the supply of imports.
D)  the income elasticity of the supply of imports.E) A) and C)
F) None of the above

Question 8

A "good" (or ideal) international monetary system should provide

Accepted Answer

A)  liquidity, elasticity, and flexibility.
B)  elasticity, sensitivity, and reliability.
C)  liquidity, adjustments, and confidence.
D)  none of the aboveE) None of the above
F) C) and D)

Question 9

The Triffin paradox

Accepted Answer

A)  was first proposed by Professor Robert Triffin.
B)  warned that the gold-exchange system of the Bretton Woods agreement was programmed to collapse in the long run.
C)  was indeed responsible for the eventual collapse of the dollar-based gold-exchange system in the early 1970s.
D)  all of the above are correctE) A) and D)
F) All of the above

Question 10

Suppose that Britain pegs the pound to gold at six pounds per ounce,whereas the exchange rate between pounds and U.S.dollars is $5 = £1.What should an ounce of gold be worth in U.S.dollars?

Accepted Answer

A)  $29.40
B)  $30.00
C)  $0.83
D)  $1.20E) A) and B)
F) A) and C)

Question 11

The Asian Currency Crisis

Accepted Answer

A)  happened just prior to the Mexican peso crisis.
B)  turned out to be far more serious than the Mexican peso crisis in terms of the extent of contagion.
C)  was limited to Asian currencies.
D)  was almost over before anyone outside the pacific rim noticed.E) A) and D)
F) B) and C)

Question 12

The first full-fledged gold standard

Accepted Answer

A)  was not established until 1821 in Great Britain, when notes from the Bank of England were made fully redeemable for gold.
B)  was not established until 1780 in the United States, when notes from the Continental Army were made fully redeemable for gold.
C)  was established in 986 during the Han dynasty in China.
D)  none of the aboveE) B) and C)
F) C) and D)

Question 13

A booming economy with a fixed or stable nominal exchange rate

Accepted Answer

A)  inevitably brings about an appreciation of the real exchange rate.
B)  inevitably brings about a depreciation of the real exchange rate.
C)  inevitably brings about a stabilization of the real exchange rate.
D)  inevitably brings about increased volatility of the real exchange rate.E) C) and D)
F) A) and B)

Question 14

Under the Bretton Woods system each country established a par value for its currency in relation to the dollar.And the U.S.dollar was pegged to gold at

Accepted Answer

A)  $1 per ounce.
B)  $35 per ounce.
C)  $350 per ounce.
D)  $900 per ounce.E) None of the above
F) B) and D)

Question 15

Monetary policy for the countries using the euro as a currency is now conducted by

Accepted Answer

A)  the Federal Reserve.
B)  the Bundesbank.
C)  European Central Bank.
D)  none of the aboveE) None of the above
F) B) and C)

Question 16

On January 1,1999,an epochal event took place in the arena of international finance when

Accepted Answer

A)  all EU countries adopted a common currency called the euro.
B)  eight of 15 EU countries adopted a common currency called the euro.
C)  nine of 15 EU countries adopted a common currency called the euro.
D)  eleven of 15 EU countries adopted a common currency called the euro.E) B) and D)
F) C) and D)

Question 17

Prior to the Argentine Peso Crisis

Accepted Answer

A)  Argentina had a "dirty float" where the government allowed the exchange rate to float within wide bands.
B)  Argentina had a currency board arrangement with the peso pegged to the U.S.dollar at parity.
C)  the Argentine government defaulted on its international debts.
D)  weakening of the U.S.dollar led the Argentine government to abandon dollarization.E) C) and D)
F) B) and D)

Question 18

The main cost of European monetary union is

Accepted Answer

A)  the loss of national monetary and exchange rate policy independence.
B)  increased exchange rate uncertainty.
C)  lessened political integration.
D)  none of the aboveE) A) and D)
F) A) and C)

Question 19

Another name for the incompatible trinity is the

Accepted Answer

A)  Tobin Tax.
B)  Triffin Paradox.
C)  Trilemma.
D)  None of the aboveE) C) and D)
F) A) and C)

Question 20

To pave the way for the European Monetary Union,the member countries of the European Monetary System agreed to achieve a convergence of their economies.Which of the following is NOT a condition of convergence:

Accepted Answer

A)  keep the ratio of government budget deficits to GDP below 3 percent.
B)  keep gross public debts below 60 percent of GDP.
C)  achieve a high degree of price stability.
D)  maintain its currency at a fixed exchange rate to the ERM.E) A) and B)
F) A) and C)

Exam 2: International Monetary System

Once capital markets are integrated,it is difficult for a country to maintain a fixed exchange rate.Why?

Correct Answer
verified

The Triffin paradox

Correct Answer
verified

Under the Bretton Woods system each country established a par value for its currency in relation to the dollar.And the U.S.dollar was pegged to gold at

Correct Answer
verified

The majority of countries got off gold in 1914 when

Correct Answer
verified

The first full-fledged gold standard

Correct Answer
verified

On January 1,1999,an epochal event took place in the arena of international finance when

Correct Answer
verified

Monetary policy for the countries using the euro as a currency is now conducted by

Correct Answer
verified

Correct Answer
verified

Prior to the Argentine Peso Crisis

Correct Answer
verified

To pave the way for the European Monetary Union,the member countries of the European Monetary System agreed to achieve a convergence of their economies.Which of the following is NOT a condition of convergence:

Correct Answer
verified

The main cost of European monetary union is

Correct Answer
verified

Suppose that Britain pegs the pound to gold at six pounds per ounce,whereas the exchange rate between pounds and U.S.dollars is $5 = £1.What should an ounce of gold be worth in U.S.dollars?

Correct Answer
verified

The Asian Currency Crisis

Correct Answer
verified

Under the Bretton Woods system

Correct Answer
verified

Correct Answer
verified

A "good" (or ideal) international monetary system should provide

Correct Answer
verified

A booming economy with a fixed or stable nominal exchange rate

Correct Answer
verified

One potential drawback of the gold standard is that

Correct Answer
verified

Under a flexible exchange rate regime,governments can retain monetary policy independence because the external balance will be achieved by

Correct Answer
verified

Another name for the incompatible trinity is the

Correct Answer
verified

Exam 2: International Monetary System

Once capital markets are integrated,it is difficult for a country to maintain a fixed exchange rate.Why?

Correct AnswerverifiedShow Answer

The Triffin paradox

Correct AnswerverifiedShow Answer

Under the Bretton Woods system each country established a par value for its currency in relation to the dollar.And the U.S.dollar was pegged to gold at

Correct AnswerverifiedShow Answer

The majority of countries got off gold in 1914 when

Correct AnswerverifiedShow Answer

The first full-fledged gold standard

Correct AnswerverifiedShow Answer

On January 1,1999,an epochal event took place in the arena of international finance when

Correct AnswerverifiedShow Answer

Monetary policy for the countries using the euro as a currency is now conducted by

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Prior to the Argentine Peso Crisis

Correct AnswerverifiedShow Answer

To pave the way for the European Monetary Union,the member countries of the European Monetary System agreed to achieve a convergence of their economies.Which of the following is NOT a condition of convergence:

Correct AnswerverifiedShow Answer

The main cost of European monetary union is

Correct AnswerverifiedShow Answer

Suppose that Britain pegs the pound to gold at six pounds per ounce,whereas the exchange rate between pounds and U.S.dollars is $5 = £1.What should an ounce of gold be worth in U.S.dollars?

Correct AnswerverifiedShow Answer

The Asian Currency Crisis

Correct AnswerverifiedShow Answer

Under the Bretton Woods system

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A "good" (or ideal) international monetary system should provide

Correct AnswerverifiedShow Answer

A booming economy with a fixed or stable nominal exchange rate

Correct AnswerverifiedShow Answer

One potential drawback of the gold standard is that

Correct AnswerverifiedShow Answer

Under a flexible exchange rate regime,governments can retain monetary policy independence because the external balance will be achieved by

Correct AnswerverifiedShow Answer

Another name for the incompatible trinity is the

Correct AnswerverifiedShow Answer

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