Multiple Choice Questions International monetary system 

Multiple Choice Questions International monetary system 

36. (p. 344) Which of the following refers to the institutional arrangements countries adopt to govern exchange rates? A. International Monetary FundB. Global agreement on exchange ratesC. International monetary systemD. Bretton Woods Arrangement

The international monetary system refers to the institutional arrangements that govern exchange rates.

 

7. (p. 345) When the foreign exchange market determines the relative value of a currency, the country is said to adhere to a _____ exchange rate regime. A. fixedB. floatingC. dirty floatD. pegged

When the foreign exchange market determines the relative value of a currency, we say that the country is adhering to a floating exchange rate regime.

 

38. (p. 345) When the value of a currency is fixed relative to a reference currency, this is referred to as a: A. variable exchange rate.B. pegged exchange rate.C. linked exchange rate.D. floating exchange rate.

A pegged exchange rate means the value of the currency is fixed relative to a reference currency, such as the U.S. dollar, and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-01Topic: Introduction 

39. (p. 345) Many of the states around the Gulf of Arabia have long pegged their currencies to the: A. dollar.B. British pound.C. euro.D. Saudi dinar.

Many of the world's developing nations peg their currencies, primarily to the dollar or the euro. Many of the states around the Gulf of Arabia have long pegged their currencies to the dollar.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-01Topic: Introduction 

40. (p. 345) Some countries try to hold the value of their currency within some range against an important reference currency. This is referred to as a: A. dirty float.B. free float.C. pegged float.D. variable alternative.

Some countries, while not adopting a formal pegged rate, try to hold the value of their currency within some range against an important reference currency such as the U.S. dollar, or a "basket" of currencies. This is often referred to as a dirty float.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-01Topic: Introduction 

41. (p. 345) Which of the following is a system under which a country's currency is nominally allowed to float freely against other currencies, but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value? A. Fixed exchange rateB. Free floatC. Pegged floatD. Dirty float

Dirty float is a system under which a country's currency is nominally allowed to float freely against other currencies, but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-01Topic: Introduction 

42. (p. 345) Which of the following is closer to the policy adopted by the Chinese government since 2005? A. Pegged exchange rateB. Clean floatC. Dirty floatD. Fixed exchange rate

Dirty float has been the policy adopted by the Chinese since July 2005. The value of the Chinese currency, the yuan, has been linked to a basket of other currencies, including the dollar, yen, and euro, and it is allowed to vary in value against individual currencies, but only within tight limits.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-01Topic: Introduction 

43. (p. 345) The ____ was a system to regulate fixed exchange rates before the introduction of the euro. A. European Free Trade AssociationB. European monetary systemC. International monetary systemD. European Community

Before the introduction of the euro in 2000, several member states of the European Union operated with fixed exchange rates within the context of the European Monetary System (EMS).

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-01Topic: Introduction 

44. (p. 345) The values of a set of currencies are fixed against each other at some mutually agreed on exchange rate in a: A. permanent exchange rate system.B. floating exchange rate system.C. fixed exchange rate system.D. dirty float system.

Fixed Exchange Rate is a system under which the exchange rate for converting one currency into another is fixed.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-01Topic: Introduction 

45. (p. 345) The Bretton Woods conference of 1944 established the basic framework for the: A. WTO.B. post-World War II monetary system.C. Global Agreement on Tariffs and Trade.D. floating exchange rate system.

The 1944 Bretton Woods conference established the basic framework for the post-World War II international monetary system.

 

AACSB: AnalyticBloom's: RememberDifficulty: MediumLearning Objective: 10-01Topic: Introduction 

46. (p. 345) Which of the following was a major international institution created by the Bretton Woods conference? A. Global Agreement on Tariffs and TradeB. European monetary systemC. World Trade OrganizationD. World Bank

The Bretton Woods conference created two major international institutions that play a role in the international monetary system—the International Monetary Fund (IMF) and the World Bank.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-01Topic: Introduction 

47. (p. 345) Which if the following is associated with the Bretton Woods system? A. Pegged exchange ratesB. Floating exchange ratesC. Fixed exchange ratesD. Dirty float

The Bretton Woods system called for fixed exchange rates against the U.S. dollar.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-01Topic: Introduction 

48. (p. 346) Which of the following is an accurate description of the gold standard? A. Pegging currencies to gold and guaranteeing convertibility.B. Conducting international trade by physically exchanging gold.C. The most valuable currency in the world at any given point in time.D. Trading gold for other valuable commodities.

Gold standard is the practice of pegging currencies to gold and guaranteeing convertibility.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-01Topic: The Gold Standard 

49. (p. 346-347) Assume that under gold standard one unit of Currency A was defined as equivalent to 48 grains of "fine" gold while one unit of Currency B was defined as equivalent to 120 grains of "fine" gold. There are 480 grains in an ounce. Based on this information, one unit of Currency B is equal to: A. 0.4 units of currency A.B. 2.5 units of currency A.C. 4 units of currency A.D. 10 units of currency A.

One ounce of gold cost 10 units of Currency A (480/48). One ounce of gold cost 4 units of Currency B (480/120). From the gold par values of these currencies, we can calculate what the exchange rate converting Currency B into Currency A; one unit of Currency B = 2.5 units of Currency A (10units of A/4units of B).

 

AACSB: Reflective ThinkingBloom's: ApplyDifficulty: HardLearning Objective: 10-01Topic: The Gold Standard 

50. (p. 347) Under the gold standard, the amount of currency needed to purchase one ounce of gold was referred to as the gold _____ value. A. arbitraryB. monetaryC. legalD. par

The amount of a currency needed to purchase one ounce of gold was referred to as the gold par value.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-01Topic: The Gold Standard 

51. (p. 347) When is a country said to be in balance-of-trade equilibrium? A. When it does not have a trade deficit.B. When the income its residents earn from exports is less than the money its residents pay to other countries for imports.C. When the current account of its balance of payments is in balance.D. When the income its residents earn from exports is greater than the money its residents pay to other countries for imports.

A country is said to be in balance-of-trade equilibrium when the income its residents earn from exports is equal to the money its residents pay to other countries for imports (the current account of its balance of payments is in balance).

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-01Topic: The Gold Standard 

52. (p. 347) Which of the following is a great strength claimed for the gold standard? A. It helped establish the dollar as a predominant vehicle currency.B. It helped governments raise foreign exchange reserves thereby increasing economic stability.C. It contained a mechanism for achieving balance-of-trade equilibrium by all countries.D. It helped reduce inflation to near-zero levels in all countries engaged in international trade.

The great strength claimed for the gold standard was that it contained a powerful mechanism for achieving balance-of- trade equilibrium by all countries.

 

AACSB: AnalyticBloom's: RememberDifficulty: MediumLearning Objective: 10-01Topic: The Gold Standard 

53. (p. 347) The gold standard was abandoned in: A. 1870.B. 1889.C. 1914.D. 1924.

The gold standard worked reasonably well from the 1870s until the start of World War I in 1914, when it was abandoned.

 

AACSB: AnalyticBloom's: RememberDifficulty: MediumLearning Objective: 10-01Topic: The Gold Standard 

54. (p. 348) In the 1930s, confidence in the _____ was shattered because countries were devaluing their currencies at will. A. fixed exchange systemB. gold standardC. currency boardsD. Bretton Woods system

The net result of actions of countries in the 1930s was the shattering of any remaining confidence in the gold standard system. With countries devaluing their currencies at will, one could no longer be certain how much gold a currency could buy.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-01Topic: The Gold Standard 

55. (p. 348) Which of the following was a major international institution established by the Bretton Woods conference? A. Global Agreement on Tariffs and TradeB. European monetary systemC. World Trade OrganizationD. International Monetary Fund

The agreement reached at Bretton Woods established two multinational institutions—the International Monetary Fund (IMF) and the World Bank.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-02Topic: The Bretton Woods System 

56. (p. 348) Which of the following was the objective of establishing the International Monetary Fund (IMF)? A. Maintain order in the international monetary system.B. Promote general economic development.C. Provide loans to the World Bank.D. Help finance the building of Europe's economy by providing low-interest loans.

The task of the IMF would be to maintain order in the international monetary system and that of the World Bank would be to promote general economic development.

 

AACSB: AnalyticBloom's: RememberDifficulty: MediumLearning Objective: 10-02Topic: The Bretton Woods System 

57. (p. 348) Which of the following was the objective of establishing the World Bank? A. Become the lender of last resort to reserve banks.B. Promote general economic development.C. Maintain stability in the international monetary system.D. Regulate exchange rates of member nations.

The task of the IMF would be to maintain order in the international monetary system and that of the World Bank would be to promote general economic development.

 

AACSB: AnalyticBloom's: RememberDifficulty: MediumLearning Objective: 10-02Topic: The Bretton Woods System 

58. (p. 348) According to the Bretton Woods agreement of 1944, which currency remained convertible to gold? A. U.S. dollarB. British poundC. Japanese yenD. German mark

Only the dollar remained convertible into gold—at a price of $35 per ounce.

 

AACSB: AnalyticBloom's: RememberDifficulty: MediumLearning Objective: 10-02Topic: The Bretton Woods System 

59. (p. 348-349) Which of the following observations is true of the Bretton Woods agreement? A. All countries participating were required to exchange their currencies for gold.B. Devaluation was accepted as a tool of competitive trade policy.C. All participating countries agreed to try to maintain the value of their currencies within 10 percent of the par value by buying or selling currencies as needed.D. Devaluation of up to 10 percent would be allowed without any formal approval by the IMF.

All participating countries agreed to try to maintain the value of their currencies within 1 percent of the par value by buying or selling currencies (or gold) as needed. Another aspect of the Bretton Woods agreement was a commitment not to use devaluation as a weapon of competitive trade policy. A devaluation of up to 10 percent would be allowed without any formal approval by the IMF. Larger devaluations required IMF approval.

 

AACSB: AnalyticBloom's: RememberDifficulty: HardLearning Objective: 10-02Topic: The Bretton Woods System 

60. (p. 349) The aim of the Bretton Woods agreement, of which the ____ was the main custodian, was to try to avoid a repetition of the financial chaos of the previous years through a combination of discipline and flexibility. A. World BankB. WTOC. IMFD. GATT

The aim of the Bretton Woods agreement, of which the IMF was the main custodian, was to try to avoid a repetition of the financial chaos of the past through a combination of discipline and flexibility.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-02Topic: The Bretton Woods System 

61. (p. 349) Which of the following is a way in which a fixed exchange rate regime imposes discipline? A. The need to maintain a fixed rate puts a brake on competitive devaluations.B. It imposes fiscal discipline on countries, thereby reducing market activity.C. It increases demand for products and services thereby increasing productivity.D. It imposes monetary discipline by making governments set exchange rates.

A fixed exchange rate regime imposes discipline in two ways. First, the need to maintain a fixed exchange rate puts a brake on competitive devaluations and brings stability to the world trade environment. Second, a fixed exchange rate regime imposes monetary discipline on countries, thereby curtailing price inflation.

 

AACSB: AnalyticBloom's: RememberDifficulty: MediumLearning Objective: 10-02Topic: The Bretton Woods System 

62. (p. 349) The architects of the Bretton Woods agreement wanted to avoid high unemployment, so they built limited flexibility into the system. Which of the following was a major feature of the IMF Articles of Agreement that fostered this flexibility? A. Balance-of-trade equilibriumB. Adjustable paritiesC. Free tradeD. Interest rate adjustment

The architects of the Bretton Woods agreement wanted to avoid high unemployment, so they built limited flexibility into the system. Two major features of the IMF Articles of Agreement fostered this flexibility: IMF lending facilities and adjustable parities.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-02Topic: The Bretton Woods System 

63. (p. 349-350) Which of the following is true of IMF lending facilities? A. IMF supervision of a country's macroeconomic policies was not envisaged whatever be the extent of drawings.B. Most IMF loans were for periods of 10-15 years to help members tide over balance-of-payments deficits.C. Member countries were not allowed to borrow any amount from the IMF without adhering to any specific agreements.D. IMF funds were meant to buy time for countries to bring down their inflation rates and reduce their balance-of-payments deficits.

By providing deficit-laden countries with short-term foreign currency loans, IMF funds would buy time for countries to bring down their inflation rates and reduce their balance-of-payments deficits. Countries were to be allowed to borrow a limited amount without adhering to any specific agreements. However, extensive drawings would require a country to agree to increasingly stringent IMF supervision of its macroeconomic policies.

 

AACSB: AnalyticBloom's: RememberDifficulty: MediumLearning Objective: 10-02Topic: The Bretton Woods System 

64. (p. 350) The system of adjustable parities allowed for the devaluation of a country's currency by more than _____ percent if the IMF agreed that a country's balance of payments was in "fundamental disequilibrium." A. 2B. 10C. 5D. 1

The system of adjustable parities allowed for the devaluation of a country's currency by more than 10 percent if the IMF agreed that a country's balance of payments was in "fundamental disequilibrium."

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-02Topic: The Bretton Woods System 

65. (p. 350) Which term was intended to apply to countries that had suffered permanent adverse shifts in the demand for their products? A. Competitive disadvantageB. Capital flightC. Fundamental disequilibriumD. Noncompeting

The term fundamental disequilibrium was not defined in the IMF's Articles of Agreement, but it was intended to apply to countries that had suffered permanent adverse shifts in the demand for their products.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-02Topic: The Bretton Woods System 

66. (p. 350) What is the official name for the World Bank? A. International Bank for Reconstruction and Development (IBRD)B. International Development Association (IDA)C. International Monetary Agency (IMA)D. Bank for International Settlements (BIS)

The official name for the World Bank is the International Bank for Reconstruction and Development (IBRD).

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-02Topic: The Bretton Woods System 

67. (p. 350) What was the initial mission of the World Bank? A. Maintain order in the international monetary system.B. Promote general economic development in Third World nations.C. Provide loans to the International Monetary Fund.D. Help finance the building of Europe's economy through low-interest loans.

The World Bank's initial mission was to help finance the building of Europe's economy by providing low-interest loans.

 

AACSB: AnalyticBloom's: RememberDifficulty: MediumLearning Objective: 10-02Topic: The Bretton Woods System 

68. (p. 350) Which of the following was responsible for shifting the focus of the World Bank from Europe to Third World nations? A. Truman doctrineB. Berlin blockadeC. Korean warD. Marshall Plan

The World Bank's initial mission was to help finance the building of Europe's economy by providing low-interest loans. As it turned out, the World Bank was overshadowed in this role by the Marshall Plan, under which the United States lent money directly to European nations to help them rebuild. So the bank turned its attention to "development" and began lending money to Third World nations.

 

AACSB: AnalyticBloom's: RememberDifficulty: MediumLearning Objective: 10-02Topic: The Bretton Woods System 

69. (p. 350) Which of the following is true of the IBRD scheme of the World Bank? A. Resources to fund IBRD loans are raised through subscriptions from wealthy members.B. IBRD loans go only to the poorest countries.C. Borrowers pay the bank's cost of funds plus a margin for expenses.D. Borrowers have 50 years to repay at an interest rate of 1 percent a year.

Under the IBRD scheme, money is raised through bond sales in the international capital market. Borrowers pay what the bank calls a market rate of interest—the bank's cost of funds plus a margin for expenses. This "market" rate is lower than commercial banks' market rate. Under the IBRD scheme, the bank offers low-interest loans to risky customers whose credit rating is often poor, such as the governments of underdeveloped nations.

 

AACSB: AnalyticBloom's: RememberDifficulty: HardLearning Objective: 10-02Topic: The Bretton Woods System 

70. (p. 350) Which of the following observations about the International Development Association (IDA) scheme of the World Bank is true? A. Money is raised through bond sales in the international capital market.B. Borrowers have 50 years to repay at an interest rate of 1 percent a year.C. Borrowers pay rates slightly lower than commercial banks' market rate.D. Loans are offered to governments of all underdeveloped nations.

Resources to fund IDA loans are raised through subscriptions from wealthy members such as the United States, Japan, and Germany. IDA loans go only to the poorest countries. Borrowers have 50 years to repay at an interest rate of 1 percent a year.

 

AACSB: AnalyticBloom's: RememberDifficulty: MediumLearning Objective: 10-02Topic: The Bretton Woods System 

71. (p. 350) Which of the following is being practiced after the collapse of the system of fixed exchange rates established at Bretton Woods? A. Clean float systemB. Managed-float systemC. Currency board systemD. Gold standard

The system of fixed exchange rates established at Bretton Woods worked well until the late 1960s, when it began to show signs of strain. The system finally collapsed in 1973, and since then we have had a managed-float system.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-01Topic: The Collapse of the Fixed Exchange Rate System 

72. (p. 351) Most economists trace the breakup of the fixed exchange rate system to the: A. U.S. macroeconomic policy package of 1965-1968.B. Formation of the European Community in the late 1950s.C. Marshall Plan, under which the United States lent money heavily to European nations.D. Failure of the International Monetary Fund to impose monetary discipline.

Most economists trace the breakup of the fixed exchange rate system to the U.S. macroeconomic policy package of 1965-1968.

 

AACSB: AnalyticBloom's: RememberDifficulty: MediumLearning Objective: 10-01Topic: The Collapse of the Fixed Exchange Rate System 

73. (p. 351) Between 1965 and 1968, President Lyndon Johnson backed an increase in U.S. government spending that was financed by: A. sales of gold reserves.B. IMF loans.C. an increase in the money supply.D. an increase in taxes.

To finance both the Vietnam conflict and his welfare programs, President Lyndon Johnson backed an increase in U.S. government spending that was not financed by an increase in taxes. Instead, it was financed by an increase in the money supply.

 

AACSB: AnalyticBloom's: RememberDifficulty: MediumLearning Objective: 10-01Topic: The Collapse of the Fixed Exchange Rate System 

74. (p. 351) In 1971, U.S. trade figures showed that for the first time since 1945, the United States was importing more than it was exporting. This set off massive purchases of: A. U.S. dollars.B. German deutsche marks.C. British pounds.D. Japanese yen.

In 1971, U.S. trade figures showed that for the first time since 1945, the United States was importing more than it was exporting. This set off massive purchases of German deutsche marks in the foreign exchange market by speculators who guessed that the mark would be revalued against the dollar.

 

AACSB: AnalyticBloom's: RememberDifficulty: MediumLearning Objective: 10-01Topic: The Collapse of the Fixed Exchange Rate System 

75. (p. 351) In August 1971, U.S. President Nixon made the following two announcements: (1) a new 10 percent tax on imports would remain in effect until the trading partners of the U.S. agreed to revalue their currency against the dollar and (2) the: A. U.S. planned to call for a second Bretton Woods conference.B. U.S. would no longer support the World Bank.C. U.S. planned to devalue its currency by 20 percent.D. dollar was no longer convertible into gold.

President Nixon announced in August 1971 that the dollar was no longer convertible into gold. He also announced that a new 10 percent tax on imports would remain in effect until U.S. trading partners agreed to revalue their currencies against the dollar.

 

AACSB: AnalyticBloom's: RememberDifficulty: MediumLearning Objective: 10-01Topic: The Collapse of the Fixed Exchange Rate System 

76. (p. 352) What was considered an Achilles' heel of the Bretton Woods system? A. It could be wrecked by heavy borrowings from the World Bank and IMF.B. It could not work if the U.S. dollar was under speculative attack.C. It could not help countries in a situation of fundamental disequilibrium.D. It forced monetary discipline on participating nations.

The Bretton Woods system had an Achilles' heel: The system could not work if its key currency, the U.S. dollar, was under speculative attack.

 

AACSB: AnalyticBloom's: UnderstandDifficulty: MediumLearning Objective: 10-01Topic: The Collapse of the Fixed Exchange Rate System 

77. (p. 352) The Jamaica meeting in January 1976 revised the IMF's Articles of Agreement to reflect the new reality of: A. fixed exchange rates.B. gold standard.C. the dollar peg.D. floating exchange rates.

The Jamaica meeting revised the IMF's Articles of Agreement to reflect the new reality of floating exchange rates.

 

AACSB: AnalyticBloom's: RememberDifficulty: MediumLearning Objective: 10-01Topic: The Floating Exchange Rate Regime 

78. (p. 352) Which of the following was abandoned as a reserve asset according to the Jamaica agreement? A. SilverB. U.S. dollarC. GoldD. A basket of vehicle currencies

As per the Jamaica agreement, gold was abandoned as a reserve asset. The IMF returned its gold reserves to members at the current market price, placing the proceeds in a trust fund to help poor nations.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-01Topic: The Floating Exchange Rate Regime 

79. (p. 352) Which of the following was a main element of the Jamaica agreement of 1976? A. The International Monetary Fund was established.B. Floating rates were declared acceptable.C. Total annual IMF quotas were decreased.D. The U.S. dollar became the new reserve asset.

According to the Jamaica agreement: (1) Floating rates were declared acceptable. (2) Gold was abandoned as a reserve asset. (3) Total annual IMF quotas were increased to $41 billion.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-01Topic: The Floating Exchange Rate Regime 

80. (p. 352) In 1997, the currencies of South Korea, Indonesia, Malaysia, and Thailand _____ of their value against the U.S. dollar in a few months. A. gained between 50 percent and 80 percentB. lost between 50 percent and 80 percentC. gained between 10 percent and 20 percentD. lost between 10 percent and 20 percent

In the Asian currency crisis of 1997, currencies of several countries, including South Korea, Indonesia, Malaysia, and Thailand, lost between 50 percent and 80 percent of their value against the U.S. dollar in a few months.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-01Topic: The Floating Exchange Rate Regime 

81. (p. 353) Which of the following partly helps explain the rise in the value of the dollar between 1980 and 1985 despite a large trade deficit? A. Political stability and peace in all other parts of the world.B. Heavy capital outflows from the United States.C. Low real interest rates in the United States.D. Slow economic growth in the developed countries of Europe.

High real interest rates in the U.S. attracted foreign investors seeking high returns on financial assets. At the same time, political turmoil in other parts of the world, along with relatively slow economic growth in the developed countries of Europe, helped create the view that the United States was a good place to invest.

 

AACSB: AnalyticBloom's: RememberDifficulty: MediumLearning Objective: 10-01Topic: The Floating Exchange Rate Regime 

82. (p. 353) The fall in the value of the U.S. dollar between 1985 and 1988 was caused by a combination of: A. government intervention and market forces.B. high inflation and high real interest rates in the United States.C. a trade surplus in the previous years and high consumer debt.D. deregulation and high interest rates.

The fall in the value of the dollar between 1985 and 1988 was caused by a combination of government intervention and market forces.

 

AACSB: AnalyticBloom's: RememberDifficulty: MediumLearning Objective: 10-01Topic: The Floating Exchange Rate Regime 

83. (p. 353) During which meeting in 1985 did the Group of Five major industrial countries announce that it would be desirable for most major currencies to appreciate vis-à-vis the U.S. dollar? A. Doha AccordB. Bretton Woods AccordC. Plaza AccordD. Louvre Accord

Plaza Accord: The Group of Five major industrial countries announced that it would be desirable for most major currencies to appreciate vis-à-vis the U.S. dollar and pledged to intervene in the foreign exchange markets, selling dollars, to encourage this objective.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-01Topic: The Floating Exchange Rate Regime 

84. (p. 353) The Plaza Accord of 1985 concluded that it would be desirable if: A. the countries moved back to a system of fixed exchange rates.B. the participating members reverted to the gold standard.C. full convertibility was limited to the U.S. dollar.D. most major currencies appreciated vis-à-vis the U.S. dollar.

Plaza Accord: The Group of Five major industrial countries announced that it would be desirable for most major currencies to appreciate vis-à-vis the U.S. dollar and pledged to intervene in the foreign exchange markets, selling dollars, to encourage this objective.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-01Topic: The Floating Exchange Rate Regime 

85. (p. 354) According to the Plaza Accord of 1985, the Group of Five major industrial countries pledged to: A. intervene in the foreign exchange markets to sell dollars.B. let their currencies depreciate against the U.S. dollar.C. revert to a system of fixed exchange rates.D. donate more funds to the IDA scheme of the World Bank.

Plaza Accord: The Group of Five major industrial countries announced that it would be desirable for most major currencies to appreciate vis-à-vis the U.S. dollar and pledged to intervene in the foreign exchange markets, selling dollars, to encourage this objective.

 

AACSB: AnalyticBloom's: RememberDifficulty: MediumLearning Objective: 10-01Topic: The Floating Exchange Rate Regime 

86. (p. 354) According to the _____ of 1987, the governments of the Group of Five major industrial nations agreed that exchange rates had been realigned sufficiently and pledged to support the stability of exchange rates around their current levels by intervening in the foreign exchange markets when necessary to buy and sell currency. A. Doha AccordB. Bretton Woods AccordC. Plaza AccordD. Louvre Accord

The dollar continued to decline until 1987. The governments of the Group of Five began to worry that the dollar might decline too far, so the finance ministers met in Paris in February 1987 and reached a new agreement known as the Louvre Accord. They agreed that exchange rates had been realigned sufficiently and pledged to support the stability of exchange rates around their current levels by intervening in the foreign exchange markets when necessary to buy and sell currency.

 

AACSB: AnalyticBloom's: RememberDifficulty: EasyLearning Objective: 10-01Topic: The Floating Exchange Rate Regime 

87. (p. 354) Which of the following helps explain the rise of the dollar against most major currencies in the late 1990s, even though the United States was still running a significant balance-of-payments deficit? A. Increased government intervention in the foreign exchange market.B. Increased foreign investments in U.S. financial assets.C. Low real interest rates in the U.S. compared to the rest of the world.D. The fall of the Soviet Union and the communist bloc.

The driving force for the appreciation in the value of the dollar was that foreigners continued to invest in U.S. financial assets, primarily stocks and bonds, and the inflow of money drove up the value of the dollar on foreign exchange markets.

 

AACSB: AnalyticBloom's: RememberDifficulty: MediumLearning Objective: 10-01Topic: The Floating Exchange Rate Regime 

88. (p. 354) In the early 1970s, the ______ became the currency for oil trades. A. British poundB. German markC. U.S. dollarD. Saudi dinar

In the early 1970s, dollars became the currency for oil trades through an agreement between the United States and OPEC. This commitment of OPEC to dollar oil sales was made secretly by the United States and Saudi Arabia, first, and then the United States and other OPEC countries.

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