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Exam 11: The International Monetary System

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Question 1

True/False

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Market forces have produced a stable dollar exchange rate under a floating exchange rate regime.

A) True
B) False

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Question 2

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A currency board system limits the ability of the government to print money and,thereby,create inflationary pressures.

A) True
B) False

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Question 3

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Those in favor of floating exchange rate claim that _____.

The Asian economic crisis was caused by high inflation rates.

A currency crisis occurs when investors lose confidence in a country's banking system.

A pegged exchange rate means the value of a currency is fixed relative to a reference currency.

With the help of an example,explain how balance-of-trade equilibrium is maintained under the gold standard.

The rise in the value of the dollar gave U.S goods a competitive advantage over others between 1985 and 1988.

Which of the following is the reason why the current foreign-exchange system is sometimes thought of as a managed-float system?

Discuss the pegged exchange rate regime.

World Bank offers low-interest loans to risky customers whose credit rating is often poor.

Compare and contrast a pegged exchange system with a dirty float system of exchange rates.

After World War II,world's major industrial nations arranged their currencies against each other at a mutually agreed on exchange rate.This is an example of a _____ system.

Interest rates adjust automatically under a strict currency board system.

Explain the events that led to the failure of the Bretton Woods system.

A dirty float occurs when a country uses pegged exchange rates to value its currency.

What is a currency board? Why do countries choose this type of system? What are the disadvantages of this type of arrangement?

In the 1990s,most of the borrowing by the companies who invested in Asian countries had been in local currencies.

Describe the different exchange rate policies that are in practice today.

Fixed exchange rates lead to speculation and uncertainty in the value of currencies.