Question 1

Gresham's Law states that

Accepted Answer

A)  bad money drives good money out of circulation.
B)  good money drives bad money out of circulation.
C)  if a country bases its currency on both gold and silver, at an official exchange rate, it will be the more valuable of the two metals that circulate.
D)  none of the above.

Question 2

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 above

Question 3

In the 1850s the French franc was valued by both gold and silver, under the official French ratio which equated a gold franc to a silver franc 15½ times as heavy. At the same time, the gold from newly discovered mines in California poured into the market, depressing the value of gold. As a result,

Accepted Answer

A)  the franc effectively became a silver currency.
B)  the franc effectively became a gold currency.
C)  silver became overvalued under the French official ratio.
D)  answers a and c are correct

Question 4

A central bank can fix an exchange rate

Accepted Answer

A)  in perpetuity.
B)  only for as long as the market believes that it has the political will to do so.
C)  only for as long as it has reserves of gold.
D)  only for as long as it has independence of monetary policy.

Question 5

During the period between World War I and World War II, many central banks followed a policy of sterilization of gold

Accepted Answer

A)  by restricting the rate of growth in the supply of gold.
B)  by matching inflows and outflows of gold respectively with reductions and increases in domestic money and credit.
C)  by matching inflows and outflows of gold respectively with increases and reductions in domestic money and credit.
D)  none of the above.

Question 6

In the United States, bimetallism was adopted by the Coinage Act of 1792 and remained a legal standard until 1873,

Accepted Answer

A)  when Congress dropped the silver dollar from the list of coins to be minted.
B)  when Congress dropped the twenty-dollar gold piece from the list of coins to be minted.
C)  when gold from the California gold rush drove silver out of circulation.
D)  when gold from the California gold rush drove gold out of circulation.

Question 7

Under a gold standard, if Britain exported more to France than France exported to Great Britain,

Accepted Answer

A)  such international imbalances of payment will be corrected automatically.
B)  this type of imbalance will not be able to persist indefinitely.
C)  net export from Britain will be accompanied by a net flow of gold in the opposite direction.
D)  all of the above

Question 8

Following the demise of the Bretton Woods system, the IMF

Accepted Answer

A)  created a new role for itself, providing loans to countries facing balance-of-payments and exchange rate difficulties.
B)  ceased to exists, since the era of fixed exchange rates had ended.
C)  became the sole agent responsible for maintaining fixed exchange rates.
D)  became the central bank of the United Nations.

Question 9

The G-7 is composed of

Accepted Answer

A)  Canada, France, Japan, Germany, Italy, the U.K., and the United States.
B)  Switzerland, France, Japan, Germany, Italy, the U.K., and the United States.
C)  Switzerland, France, North Korea, Germany, Italy, the U.K., and the United States.
D)  Switzerland, France, Japan, Germany, Canada, the U.K., and the United States.

Question 10

The European Monetary System (EMS)  has the chief objective(s)

Accepted Answer

A)  to establish a "zone of monetary stability" in Europe.
B)  to coordinate exchange rate policies vis-à-vis the non-EMS currencies.
C)  to pave the way for the eventual European monetary union.
D)  all of the above

Question 11

Corporations today are operating in an environment in which exchange rate changes may adversely affect their competitive positions in the marketplace. This situation, in turn, makes it necessary for many firms to

Accepted Answer

A)  carefully manage their exchange risk exposure.
B)  carefully measure their exchange risk exposure.
C)  both a and b

Question 12

A currency board arrangement is

Accepted Answer

A)  when the currency of another country circulates as the sole legal tender.
B)  when the country belongs to a monetary or currency union in which the same legal tender is shared by the members of the union.
C)  a monetary regime based on an explicit legislative commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate, combined with restrictions on the issuing authority to ensure the fulfillment of its legal obligation.
D)  where the country pegs its currency at a fixed rate to a major currency where the exchange rate fluctuates within a narrow margin of less than one percent.

Question 13

The Maastricht Treaty

Accepted Answer

A)  irrevocably fixed exchange rates among the member currencies.
B)  commits the members of the European Union to political union as well as monetary union.
C)  was signed and subsequently ratified by the 12 member states.
D)  all of the above

Question 14

The Exchange Rate Mechanism (ERM)  is

Accepted Answer

A)  the procedure by which ERM member countries collectively manage their exchange rates.
B)  based on a "parity-grid" system, which is a system of par values among ERM countries.
C)  a and b
D)  none of the above

Question 15

The Bretton Woods agreement resulted in the creation of

Accepted Answer

A)  the bancor as an international reserve asset.
B)  the World Bank.
C)  the Eximbank.
D)  the Federal Reserve Bank.

Question 16

Suppose that Britain pegs the pound to gold at the market price of £6 per ounce, and the United States pegs the dollar to gold at the market price of $36 per ounce. If the official exchange rate between pounds and U.S. dollars is $5 = £1. Which of the following trades is profitable?

Accepted Answer

A)  Start with £100 and trade for $500 at the official exchange rate. Redeem the $500 for 13.89 ounces of gold. Trade the gold for £83.33.
B)  Start with $100 and buy gold. Sell the gold for £16.67. Sell the pounds at the official exchange rate.
C)  Start with £100 and buy gold. Sell the gold for $600.
D)  Start with $500 and trade for £100 at the official exchange rate. Redeem the £100 for 16 2/3 ounces of gold. Trade the gold for $600.

Question 17

Special Drawing Rights (SDR)  are

Accepted Answer

A)  an artificial international reserve allotted to the members of the International Monetary Fund (IMF) , who can then use it for transactions among themselves or with the IMF.
B)  a "portfolio" of currencies, and its value tends to be more stable than the currencies that it is comprised of.
C)  used in addition to gold and foreign exchanges, to make international payments.
D)  all of the above

Question 18

Assume that a country is on the gold standard. In order to support unrestricted convertibility into gold, banknotes need to be backed by a gold reserve of some minimum stated ratio. In addition,

Accepted Answer

A)  the domestic money stock should rise and fall as gold flows in and out of the country.
B)  the central bank can control the money supply by buying or selling the foreign currencies.
C)  Both a and b

Question 19

Which country is NOT using the euro?

Accepted Answer

A)  Greece
B)  Italy
C)  Sweden
D)  Portugal

Question 20

The advent of the euro marks the first time that sovereign countries have voluntarily given up their

Accepted Answer

A)  national borders to foster economic integration.
B)  monetary independence to foster economic integration.
C)  fiscal policy independence to foster economic integration.
D)  national debt to foster economic integration.

Exam 2: International Monetary System

Assume that a country is on the gold standard. In order to support unrestricted convertibility into gold, banknotes need to be backed by a gold reserve of some minimum stated ratio. In addition,

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Corporations today are operating in an environment in which exchange rate changes may adversely affect their competitive positions in the marketplace. This situation, in turn, makes it necessary for many firms to

Correct AnswerverifiedShow Answer

One potential drawback of the gold standard is that

Correct AnswerverifiedShow Answer

Gresham's Law states that

Correct AnswerverifiedShow Answer

A central bank can fix an exchange rate

Correct AnswerverifiedShow Answer

During the period between World War I and World War II, many central banks followed a policy of sterilization of gold

Correct AnswerverifiedShow Answer

The Exchange Rate Mechanism (ERM) is

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Following the demise of the Bretton Woods system, the IMF

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Under a gold standard, if Britain exported more to France than France exported to Great Britain,

Correct AnswerverifiedShow Answer

The G-7 is composed of

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The Bretton Woods agreement resulted in the creation of

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Suppose that Britain pegs the pound to gold at the market price of £6 per ounce, and the United States pegs the dollar to gold at the market price of $36 per ounce. If the official exchange rate between pounds and U.S. dollars is $5 = £1. Which of the following trades is profitable?

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Special Drawing Rights (SDR) are

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The European Monetary System (EMS) has the chief objective(s)

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The advent of the euro marks the first time that sovereign countries have voluntarily given up their

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The Maastricht Treaty

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A currency board arrangement is

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In the 1850s the French franc was valued by both gold and silver, under the official French ratio which equated a gold franc to a silver franc 15½ times as heavy. At the same time, the gold from newly discovered mines in California poured into the market, depressing the value of gold. As a result,

Correct AnswerverifiedShow Answer

In the United States, bimetallism was adopted by the Coinage Act of 1792 and remained a legal standard until 1873,

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Which country is NOT using the euro?

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