Question 1

In the 1960's the United States had a large balance of payments deficit due in large part to:

Accepted Answer

A)  the fact that the USD fixed at 35 per ounce of gold was undervalued.
B)  the fact that the USD fixed at 35 per ounce was overvalued.
C)  the value of the USD relative to gold was fluctuating.
D)  speculators buying and selling USD at rates other than the established rate of USD 35 per ounce of gold.E) B) and D)
F) All of the above

Question 2

Whether the Smithsonian Agreement was a reason for subsequent developments or not,the Smithsonian Agreement was followed by:

Accepted Answer

A)  significant growth in international trade and the signing of several important international trading agreements.
B)  destructive trade wars that threatened the stability of most of the world's strongest currencies.
C)  the reorganization of the IMF.
D)  new capital controls that were intended to moderate large swings in currency values.E) None of the above
F) All of the above A

Question 3

Countries most likely to use a pegged currency system are those that:

Accepted Answer

A)  have a small economy with a dominant trading partner with a stable currency.
B)  have highly structured labor markets and monetary policies.
C)  offer attractive investment opportunities for foreign entities.
D)  seek as little outside interference from the rest of the world as possible.E) C) and D)
F) B) and D)

Question 4

As a result of the Bretton Woods Agreement,the USD:

Accepted Answer

A)  was devalued and the value of the USD was set at 35 per ounce of gold.
B)  was adopted as the currency of exchange for the IMF.
C)  became the key international currency and the value of the USD was established at 35 per ounce of gold.
D)  was established as the currency to which the value of all other currencies would be linked.E) B) and C)
F) None of the above

Question 5

A currency system where small adjustments to value of the currency are made at preset points or in response to specific macroeconomic indicators is a:

Accepted Answer

A)  currency board system.
B)  crawling peg system.
C)  managed float system.
D)  independent float system.E) A) and D)
F) C) and D) B

Question 6

Taxes and other restrictions on the movement of capital between nations are:

Accepted Answer

A)  capital controls and have a negative effect on the stabilization of currency values.
B)  capital controls and were encouraged by the Bretton Woods Agreement.
C)  the creation of the IMF and are intended to stabilize currency values.
D)  trade restrictions that are controlled by the IMF.E) A) and D)
F) A) and C)

Question 7

In an independent floating currency system,official intervention is:

Accepted Answer

A)  intended to moderate changes in the exchange rate rather than to set the exchange rate.
B)  not allowed because the value of the currency is to be set by market forces.
C)  taken only to maintain the predetermined exchange rate.
D)  allowed only indirectly as through changing official interest rates.E) A) and D)
F) C) and D)

Question 8

What is the difference between nominal and real rates of interest?

Accepted Answer

The nominal rate of interest is the stat...

Question 9

The equilibrium value of a currency is the value:

Accepted Answer

A)  at which the amount of the currency that is demanded will equal the amount of the currency that is supplied.
B)  at which the currency is most often found.
C)  of the currency that has been maintained for at least 30 days.
D)  at which the country issuing the currency will issue additional currency.E) B) and D)
F) All of the above A

Question 10

The value of a foreign currency is:

Accepted Answer

A)  stable,since values are determined by the marketplace.
B)  not subject to determination except at the specific time at which a transaction in the currency occurs.
C)  subject to change depending on whether it is a pegged or floating currency.
D)  subject to change and determined by forces of supply and demand.E) A) and C)
F) A) and B)

Question 11

The traditional view of currency values focuses on:

Accepted Answer

A)  aggregate supply and demand in all transactions in which the currency is used.
B)  the current account in a country's balance of payments.
C)  how long the currency has been in existence and the long term trends in the value of the currency.
D)  volatility of the currency on international currency markets.E) A) and B)
F) All of the above

Question 12

The European Monetary Union was intended to:

Accepted Answer

A)  increase the strength of European currencies and prepare for the adoption of the euro as the European currency.
B)  establish the gold standard in Europe and make the euro the international currency of choice.
C)  make exchange rates uniform and reduce inflation.
D)  stabilize exchange rates,control inflation,and integrate economic performance among member nations.E) B) and C)
F) B) and D)

Question 13

For the country using another country's currency for domestic transactions,the result is usually:

Accepted Answer

A)  that the country whose currency is being used formally requests that it's currency not be used.
B)  the country whose currency is being used encourages the use of its currency because it increases demand for and the value of the currency.
C)  the currency markets stop making the currency of the country that is being used available to the country that is using that currency.
D)  that the country's citizen end up holding substantial assets denominated in the currency of the other country that is being used.E) C) and D)
F) All of the above

Question 14

If a country has high productivity,it can expect:

Accepted Answer

A)  high demand for its goods and high demand for the foreign currency most often used to purchase its goods.
B)  level demand for its goods,but high demand for its currency.
C)  level demand for its goods,and high demand for the foreign currency most often used to purchase its goods.
D)  high demand for the goods it produces and high demand for its currency.E) None of the above
F) A) and B)

Question 15

Currency equilibrium is more academic than real because:

Accepted Answer

A)  the concept of currency equilibrium was developed by an theoretical economist and has never been observed in practice.
B)  when a currency approaches equilibrium,governments act to avoid currency equilibrium.
C)  supply and demand constantly react to market forces so that the amount demanded and the amount supplied of a currency are almost never the same.
D)  some currencies are pegged and some currencies are free floating so that react to market forces differently.E) None of the above
F) A) and B)

Question 16

In pegged currency systems,the country fixes its currency value to the value of some other stable currency and:

Accepted Answer

A)  does not interfere with the value of its currency unless it determines that the currency to which its currency is pegged is not performing as expected.
B)  only acts to affect the value of its currency if the value of its currency decreases significantly.
C)  allows its currency value to fluctuate in a narrow band around the fixed value and then takes steps to maintain its currency's value within that band.
D)  only acts to affect the value of its currency if the value of its currency increases significantly.E) A) and D)
F) B) and D)

Question 17

When a currency strengthens against other currencies,a central bank:

Accepted Answer

A)  may sell gold to counter that appreciation in the currency's value.
B)  will buy its currency in hopes of avoiding losses.
C)  will sell its currency in hopes of making a profit.
D)  may buy gold to counter that appreciation in the currency's value.E) B) and C)
F) C) and D)

Question 18

As a result of its balance of payments deficit in the 1960's and the effect on its currency:

Accepted Answer

A)  the United States was able to sell all of its gold holdings at the established price of USD 35 per ounce.
B)  the United States was no longer able to sell its gold holdings at the established price of USD 35 per ounce.
C)  the USD ceased to be the key international currency that it was under the Bretton Woods Agreement.
D)  the IMF had to make temporary loans to the United States.E) C) and D)
F) A) and B)

Question 19

The graph of supply of a currency shows:

Accepted Answer

A)  a line that is essentially horizontal indicating that supply of a currency is not closely related to value of the currency.
B)  a line that is essentially vertical indicating that the supply of a currency is controlled by the government issuing the currency.
C)  a line that slopes downward from left to right indicating that the supply of a currency decreases as the value of the currency increases.
D)  a line that slopes upward from left to right indicating that the higher the value of the currency,the greater the supply of that currency.E) B) and D)
F) A) and B)

Question 20

How does a floating currency system allow a country more flexibility in dealing with its economic system?

Accepted Answer

A floating currency system not only allo...

Exam 4: Currency Systems and Valuation

In the 1960's the United States had a large balance of payments deficit due in large part to:

Correct AnswerverifiedShow Answer

Whether the Smithsonian Agreement was a reason for subsequent developments or not,the Smithsonian Agreement was followed by:

Correct AnswerverifiedA

Countries most likely to use a pegged currency system are those that:

Correct AnswerverifiedShow Answer

As a result of the Bretton Woods Agreement,the USD:

Correct AnswerverifiedShow Answer

A currency system where small adjustments to value of the currency are made at preset points or in response to specific macroeconomic indicators is a:

Correct AnswerverifiedB

Taxes and other restrictions on the movement of capital between nations are:

Correct AnswerverifiedShow Answer

In an independent floating currency system,official intervention is:

Correct AnswerverifiedShow Answer

What is the difference between nominal and real rates of interest?

Correct AnswerverifiedThe nominal rate of interest is the stat...View AnswerShow Answer

The equilibrium value of a currency is the value:

Correct AnswerverifiedA

The value of a foreign currency is:

Correct AnswerverifiedShow Answer

The traditional view of currency values focuses on:

Correct AnswerverifiedShow Answer

The European Monetary Union was intended to:

Correct AnswerverifiedShow Answer

For the country using another country's currency for domestic transactions,the result is usually:

Correct AnswerverifiedShow Answer

If a country has high productivity,it can expect:

Correct AnswerverifiedShow Answer

Currency equilibrium is more academic than real because:

Correct AnswerverifiedShow Answer

In pegged currency systems,the country fixes its currency value to the value of some other stable currency and:

Correct AnswerverifiedShow Answer

When a currency strengthens against other currencies,a central bank:

Correct AnswerverifiedShow Answer

As a result of its balance of payments deficit in the 1960's and the effect on its currency:

Correct AnswerverifiedShow Answer

The graph of supply of a currency shows:

Correct AnswerverifiedShow Answer

How does a floating currency system allow a country more flexibility in dealing with its economic system?

Correct AnswerverifiedA floating currency system not only allo...View AnswerShow Answer

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A

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A floating currency system not only allo...
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