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CHAPTER 10 QUIZ - CHAPTER 10 QUIZ 1 When the foreign...

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CHAPTER 10 QUIZ: 1: When the foreign exchange market sets the relative value of any currency instead of a given nation's central bank, then that country is adhering to a floating exchange rate regime. a. True b. False 2: Many of the developing nations place their currencies in relation to a reference currency like the U.S.'s; this is known as a pegged exchange rate. a. True b. False 3: Some countries try to hold the value of their currency within a range against an important reference currency, and this is often referred to as a dirty float. a. True b. False 4: The modern approach of pegging currencies to gold and guaranteeing convertibility is known as the gold standard, and it was one of the financial innovations of the 20th century. a. True b. False 5: The theory of balance-of-trade equilibrium states that when a country's national income earned from exports is equal to its current account of import payments there is a perfect balance. a. True b. False 6: The United States re-employed the gold standard in 1934 as a means to reduce the price of U.S. exports and increase the price of imports, in order to increase employment in the United States by boosting output. a. True b. False 7: The Bretton Woods System established an international monetary regime between 19 and 1973 to avoid the devaluation devastations of the 1930s and WWII; it eventually included the vanquished nations in a new world order (but none of the communist nations led by the USSR). a. True b. False 8: Most economists trace the breakup of the fixed exchange rate system in 1973 to the policies of Lyndon Johnson, who was financing a war and expanding domestic spending while refusing to raise taxes. It is generally agreed that this was a unique event and has no modern corollary. a. True b. False 9: The case in support of floating exchange rates has two main elements: monetary policy autonomy and automatic trade balance adjustments. a. True b. False 10: The case for fixed exchange rates rests on arguments about monetary discipline, speculation, uncertainty and the lack of connection between the trade balance and exchange rates. a. True b. False 11: The initial mission of the World Bank was to: a. help finance rebuilding Europe with low interest loans after World War II . b. fund development projects in Third World nations. c. provide lending services for the International Monetary Fund. d. provide grants to the world's poorest nations. 12: Which of these is not a "shock" to exchange rate stability since 1973: a. the oil crises of 1973, 1979 created by OPEC b. the 1992 partial collapse of the European Monetary System c. the 1991 defaulting of Brazil and Yugoslavia on their debts d. the rapid US dollar fall in 1985, 1987, 1993-1995 13: Critics of _______________ exchange rates argue that speculation can cause fluctuations in exchange rates and
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create uncertainty.
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