chapter 3
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chapter 3

Course Number: SPKAL 22, Spring 2013

College/University: UMSL

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Fundamentals of Multinational Finance, 4e (Moffett) Chapter 3 The International Monetary System Multiple Choice and True/False Questions 3.1 History of the International Monetary System 1) World War I caused the suspension of the gold standard for fixed international exchange rates because the war A) cost too much money. B) interrupted the free movement of gold. C) lasted too long. D) used gold as the main...

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of Fundamentals Multinational Finance, 4e (Moffett) Chapter 3 The International Monetary System Multiple Choice and True/False Questions 3.1 History of the International Monetary System 1) World War I caused the suspension of the gold standard for fixed international exchange rates because the war A) cost too much money. B) interrupted the free movement of gold. C) lasted too long. D) used gold as the main ingredient in armament plating. Register to View Answer2) The post WWII international monetary agreement that was developed in 1944 is known as the ________. A) United Nations B) League of Nations C) Yalta Agreement D) Bretton Woods Agreement Register to View Answer3) Which of the following led to the eventual demise of the fixed currency exchange rate regime worked out at Bretton Woods? A) widely divergent national monetary and fiscal policies among member nations B) differential rates of inflation across member nations. C) several unexpected economic shocks to member nations D) all of the above Register to View Answer4) An international gold standard for currency exchanges has the implicit effect of A) making currencies float relative to the price of gold. B) limiting the growth of a country's money supply subject to the ability of the official authorities to obtain more gold. C) melting the polar ice caps. D) encouraging the United Kingdom to abandon the Pound Sterling in favor of the Euro. Register to View Answer5) Which of the following is NOT a characteristic of the Bretton Woods Agreement? A) Member nations would enjoy a fixed exchange rate with an "adjustable peg" B) The International Monetary Fund would be formed C) The World Bank would be formed D) All of the above are characteristics of the Bretton Woods Agreement Register to View Answer1 Copyright 2012 Pearson Education, Inc. 3.2 Contemporary Currency Regimes 1) The IMFs exchange rate regime classification identifies ________ as the most rigidly fixed, and ________ as the least fixed. A) exchange arrangements with no separate legal tender; independent floating B) crawling pegs; managed float C) currency board arrangements; independent floating D) pegged exchange rates within horizontal bands; exchange rates within crawling pegs Register to View Answer2) Which of the following correctly identifies exchange rate regimes from less fixed to more fixed? A) independent floating, currency board arrangement, crawling pegs B) independent floating, currency board arrangement, managed float C) independent floating, crawling pegs, exchange arrangements with no separate legal tender D) exchange arrangements with no separate legal tender, currency board arrangement, crawling pegs Register to View Answer3) A small economy country whose GDP is heavily dependent on trade with the United States could use a (an) ________ exchange rate regime to minimize the risk to their economy that could arise due to unfavorable changes in the exchange rate. A) pegged exchange rate with the United States B) pegged exchange rate with the Euro C) independent floating D) managed float Register to View Answer4) Under a fixed exchange rate regime, the government of the country is officially responsible for A) intervention in the foreign exchange markets using gold and reserves. B) setting the fixed/parity exchange rate. C) maintaining the fixed/parity exchange rate. D) all of the above. Register to View Answer5) Which of the following is NOT an attribute of the "ideal" currency? A) monetary independence B) financial full integration C) exchange rate stability D) All are attributes of an ideal currency. Register to View Answer6) If exchange rates were fixed, investors and traders would be relatively certain about the current and near future exchange value of each currency. Register to View Answer7) The authors discuss the concept of the "Impossible Trinity" or the inability to achieve simultaneously the goals of exchange rate stability, full financial integration, and monetary independence. If a country chooses to have a pure float exchange rate regime, which two of the three goals is a country most able to achieve? A) monetary independence and exchange rate stability B) exchange rate stability and full financial integration C) full financial integration and monetary independence D) A country cannot attain any of the exchange rate goals with a pure float exchange rate regime. Register to View Answer3.3 Emerging Markets and Regime Choices 1) You have been hired as a consultant to the central bank for a country that has for many years suffered from repeated currency crises and depends heavily on the U.S. financial and product markets. Which of the following policies would have the greatest effectiveness for reducing currency volatility of the client country with the United States? A) dollarization B) an exchange rate pegged to the U.S. dollar C) an exchange rate with a fixed price per ounce of gold D) an internationally floating exchange rate Register to View Answer2) Which of the following is NOT an argument against dollarization? A) The dollarized country's central bank can no longer act as a lender of last resort. B) The dollarized country can no longer profit from seignorage (the ability to profit from the creation of money within its economy). C) The dollarized country losses sovereignty over its own monetary policy. D) All of the above are arguments against dollarization from the viewpoint of the affected country. Register to View Answer3.4 The Birth of a European Currency: The Euro 1) Which of the following is NOT a required convergence criteria to become a full member of the European Economic and Monetary Union (EMU)? A) National birthrates must be at 2.0 or lower per person. B) The fiscal deficit should be no more than 3% of GDP. C) Nominal inflation should be no more than 1.5% above the average inflation rate for the three members with the lowest inflation rates in the previous year. D) Government debt should be no more than 60% of GDP. Register to View Answer2) According to the authors, what is the single most important mandate of the European Central Bank? A) Promote international trade for countries within the European Union. B) Price, in euros, all products for sale in the European Union. C) Promote price stability within the European Union. D) Establish an EMU trade surplus with the United States. Register to View Answer3 Copyright 2012 Pearson Education, Inc. 3) Which of the following is a way in which the euro affects markets? A) Countries within the Euro zone enjoy cheaper transaction costs. B) Currency risks and costs related to exchange rate uncertainty are reduced. C) Consumers and business enjoy price transparency and increased price-based competition. D) All of the above. Register to View Answer4) The 1991 treaty that established a timetable to replace individual European currencies with the euro is referred to as the ________ Treaty. A) Zurich B) Yalta C) Maastricht D) Paris Register to View Answer

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