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Exam 2: International Monetary System

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Question 41

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The international monetary system went through several distinct stages of evolution. These stages are summarized, in alphabetic order, as follows: (i) - Bimetallism (ii) - Bretton Woods system (iii) - Classical gold standard (iv) - Flexible exchange rate regime (v) - Interwar period The chronological order that they actually occurred is:

A) (iii) , (i) , (iv) , (ii) , and (v)
B) (i) , (iii) , (v) , (ii) , and (iv)
C) (vi) , (i) , (iii) , (ii) , and (v)
D) (v) , (ii) , (i) , (iii) , and (iv)

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Question 42

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Under a flexible exchange rate regime, governments can retain monetary policy independence because the external balance will be achieved by

A) the exchange rate adjustments.
B) the price-specie flow mechanism.
C) the Triffin paradox.
D) none of the above

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Question 43

Multiple Choice

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Suppose that your country officially defines gold as ten times more valuable than silver (i.e. the central bank stands ready to redeem the currency in gold and silver and the official price of gold is ten times the official price of silver) . If the market price of gold is only eight times as much as silver.

The Bretton Woods system ended in

The United States adopted the gold standard in

Prior to the 1870s, both gold and silver were used as international means of payment and the exchange rates among currencies were determined by either their gold or silver contents. Suppose that the dollar was pegged to gold at $30 per ounce, the French franc is pegged to gold at 90 francs per ounce and to silver at 9 francs per ounce of silver, and the German mark pegged to silver at 1 mark per ounce of silver. What would the exchange rate between the U.S. dollar and German mark be under this system?

Consider the supply-demand framework for the British pound relative to the U.S. dollar shown in the nearby chart. The exchange rate is currently $1.80 = £1.00. Which of the following is correct?

With regard to the current exchange rate arrangement between the U.S. and the U.K., it is best characterized as

Prior to the peso crisis, Mexico depended on foreign portfolio capital to finance its economic development. This foreign capital influx

The choice between the alternative exchange rate regimes (fixed or floating) is likely to involve a trade-off between

Gold was officially abandoned as an international reserve asset

The gold standard still has ardent supporters who believe that it provides

To pave the way for the European Monetary Union, the member countries of the European Monetary System agreed to achieve a convergence of their economies. Which of the following is NOT a condition of convergence:

Suppose that both gold and silver are used as international means of payment and the exchange rates among currencies are determined by either their gold or silver contents. Suppose that the dollar was pegged to gold at $20 per ounce, the Japanese yen is pegged to gold at 120,000 yen per ounce and to silver at 8,000 yen per ounce of silver, and the Australian dollar is pegged to silver at $5 per ounce of silver. What would the exchange rate between the U.S. dollar and Australian dollar be under this system?

Once capital markets are integrated, it is difficult for a country to maintain a fixed exchange rate. Why?

Suppose that the pound is pegged to gold at £20 per ounce and the dollar is pegged to gold at $35 per ounce. This implies an exchange rate of $1.75 per pound. If the current market exchange rate is $1.60 per pound, how would you take advantage of this situation? Hint: assume that you have $350 available for investment.

The core of the Bretton Woods system was the

The majority of countries got off the gold standard in 1914 when

On January 1, 1999, an epochal event took place in the arena of international finance when

According to the theory of optimum currency areas,