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Exam 2: The International Monetary System

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Question 31

True/False

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From the time of its creation through July 2012,the euro peaked versus the USD in April 2008 at around $1.60/€.

A) True
B) False

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Question 32

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Which of the following is NOT an attribute of the "ideal" currency?

A) monetary independence
B) full financial integration
C) exchange rate stability
D) All are attributes of an ideal currency.

E) B) and C)
F) None of the above

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Question 33

Multiple Choice

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For the three years from early 2002 to early 2005,the euro maintained a strong and steady rise in value against the U.S.dollar (USD) .After a brief respite in 2005,the euro continued its climb against the USD into 2008.Which of the following were NOT a contributing factor in the assent of the euro and the decline in the dollar?

The People's Republic of China has two official currencies,the Chinese renminbi (RMB)and the yuan (CNY).

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?

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 currency board exists when a country's central bank commits to back its money supply entirely with foreign reserves at all times.

If exchange rates were fixed,investors and traders would be relatively certain about the current and near future exchange value of each currency.

The members of the EU do have relative freedom to set their own fiscal policies- government spending,taxation,and the creation of government surpluses or deficits.They are expected to keep deficit spending within limits.

Under the gold standard of currency exchange that existed from 1879 to 1914,an ounce of gold cost $20.67 in U.S.dollars and £4.2474 in British pounds.Therefore,the exchange rate of pounds per dollar under this fixed exchange regime was:

World War I caused the suspension of the gold standard for fixed international exchange rates because the war:

According to the authors,what is the single most important mandate of the European Central Bank?

Dollarization is a common solution for countries suffering from currency revaluation.

Which of the following is NOT an argument against dollarization?

Based on the premise that,other things equal,countries would prefer a fixed exchange rate: Variable rates provide stability in international prices for the conduct of trade.

One of the innovations introduced by Bretton Woods was the creation of the Special Drawing Right or SDR.The SDR is an international reserve asset created by the:

List and explain three benefits the euro would generate for the states participating in the European Economic and Monetary Union.

A small economy country whose GDP is heavily dependent on trade with the United States could use a(n) ________ exchange rate regime to minimize the risk to their economy that could arise due to unfavorable changes in the exchange rate.

Since March 1973,when exchange rates become more volatile and less predictable than during the "fixed" exchange rate period,the nominal exchange rate index of the U.S.dollar peaked in 2011.

Although the contemporary international monetary system is typically referred to as a "floating regime," it is clearly not the case for the majority of the world's nations.