Question 1

Since the early 1970s,developed countries such as Great Britain and the United States,have financed their deficits by borrowing private money,as opposed to drawing on IMF funds.

Accepted Answer

Since the early 1970s,the rapid development of global capital markets has allowed developed countries such as Great Britain and the United States to finance their deficits by borrowing private money,as opposed to drawing on IMF funds.

Question 2

Financial crises tend to have common underlying macroeconomic causes: low relative price inflation rates,a narrowing current account deficit,and an excessive expansion of domestic borrowing.

Accepted Answer

Financial crises tend to have common underlying macroeconomic causes: high relative price inflation rates,a widening current account deficit,excessive expansion of domestic borrowing,and asset price inflation (such as sharp increases in stock and property prices).

Question 3

Approximately 14 percent of the IMF's members allow their currency to float freely.

Accepted Answer

Some 14 percent of the IMF's members allow their currency to float freely.

Question 4

The forward market offers coverage for exchange rate changes for a few years.

Accepted Answer

The forward market tends to offer coverage for exchange rate changes a few months-not years-ahead.

Question 5

Pegged exchange rates are popular among many of the world's smaller nations.

Accepted Answer

Pegged exchange rates are popular among many of the world's smaller nations.

Question 6

When the value of a currency is fixed relative to a reference currency,this is referred to as a.

Accepted Answer

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.

Question 7

Exchange rate volatility such as the world experienced during the 1980s and 1990s creates an environment less conducive to international trade and investment than one with more stable exchange rates.

Accepted Answer

Exchange rate volatility such as the world experienced during the 1980s and 1990s creates an environment less conducive to international trade and investment than one with more stable exchange rates.

Question 8

In a break from its practices of the past,the IMF waived away the requirement for tight monetary policies and cuts in public spending,when it helped bail Mexico out of the currency crisis in 1995.

Accepted Answer

As is normal in such cases,the IMF insisted on tight monetary policies and further cuts in public spending,both of which helped push Mexico into a deep recession.

Question 9

A complicating factor of the Asian crisis was that by the mid-1990s,although exports were still expanding across the region,imports declined steadily.

Accepted Answer

A complicating factor was that by the mid-1990s,although exports were still expanding across Southeast Asia,imports were too.

Question 10

Which of the following refers to the institutional arrangements countries adopt to govern exchange rates?

Accepted Answer

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

Question 11

The current foreign exchange system is a mixed system in which a combination of government intervention and speculative activity can drive the foreign exchange market.

Accepted Answer

The current system is a mixed system in which a combination of government intervention and speculative activity can drive the foreign exchange market.

Question 12

Under the arrangement that exists in countries like Hong Kong,the currency board can issue additional domestic notes and coins even if there are no foreign exchange reserves to back it.

Accepted Answer

Under the arrangement that exists in countries like Hong Kong,the currency board can issue additional domestic notes and coins only when there are foreign exchange reserves to back it.

Question 13

Many of the states around the Gulf of Arabia have long pegged their currencies to the:

Accepted Answer

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.

Question 14

The IMF has become a powerful institution with sufficient checks and balances to ensure accountability.

Accepted Answer

One of the criticisms of the IMF is that it has become too powerful for an institution that lacks any real mechanism for accountability.

Question 15

Some countries try to hold the value of their currency within some range against an important reference currency.This is referred to as a:

Accepted Answer

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.

Question 16

One criticism of the IMF is that its traditional policy prescriptions represent "one-size-fits-all" approach to macroeconomic policy that is inappropriate for many countries.

Accepted Answer

One criticism of the IMF is that its traditional policy prescriptions represent "one-size-fits-all" approach to macroeconomic policy that is inappropriate for many countries.

Question 17

One of the ways of building strategic flexibility and reducing economic exposure involves contracting out manufacturing.This kind of strategy may be suited for low-value-added manufacturing than high-value-added manufacturing.

Accepted Answer

One way of building strategic flexibility and reducing economic exposure involves contracting out manufacturing.However,this kind of strategy may work only for low-value-added manufacturing (e.g. ,textiles),in which the individual manufacturers have few if any firm-specific skills that contribute to the value of the product.It may be less appropriate for high-value-added manufacturing.

Question 18

When the foreign exchange market determines the relative value of a currency,the country is said to adhere to a _____ exchange rate regime.

Accepted Answer

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.

Question 19

Before the Asian crisis of 1997,the nature of exports from Southeast Asian countries had shifted from semiconductors and consumer electronics to basic materials and products such as textiles.

Accepted Answer

The nature of exports had shifted in recent years from basic materials and products such as textiles to complex and increasingly high-technology products,such as automobiles,semiconductors,and consumer electronics.

Question 20

In response to the global financial crisis of 2008-2009,the IMF began to urge countries to adopt policies that included fiscal stimulus and monetary easing.

Accepted Answer

In response to the global financial crisis of 2008-2009 the IMF began to urge countries to adopt policies that included fiscal stimulus and monetary easing-the direct opposite of what the fund traditionally advocated.

Quiz 10: The International Monetary System

Since the early 1970s,developed countries such as Great Britain and the United States,have financed their deficits by borrowing private money,as opposed to drawing on IMF funds.

Financial crises tend to have common underlying macroeconomic causes: low relative price inflation rates,a narrowing current account deficit,and an excessive expansion of domestic borrowing.

Approximately 14 percent of the IMF's members allow their currency to float freely.

The forward market offers coverage for exchange rate changes for a few years.

Pegged exchange rates are popular among many of the world's smaller nations.

When the value of a currency is fixed relative to a reference currency,this is referred to as a.

Exchange rate volatility such as the world experienced during the 1980s and 1990s creates an environment less conducive to international trade and investment than one with more stable exchange rates.

In a break from its practices of the past,the IMF waived away the requirement for tight monetary policies and cuts in public spending,when it helped bail Mexico out of the currency crisis in 1995.

A complicating factor of the Asian crisis was that by the mid-1990s,although exports were still expanding across the region,imports declined steadily.

Which of the following refers to the institutional arrangements countries adopt to govern exchange rates?

The current foreign exchange system is a mixed system in which a combination of government intervention and speculative activity can drive the foreign exchange market.

Under the arrangement that exists in countries like Hong Kong,the currency board can issue additional domestic notes and coins even if there are no foreign exchange reserves to back it.

Many of the states around the Gulf of Arabia have long pegged their currencies to the:

The IMF has become a powerful institution with sufficient checks and balances to ensure accountability.

Some countries try to hold the value of their currency within some range against an important reference currency.This is referred to as a:

One criticism of the IMF is that its traditional policy prescriptions represent "one-size-fits-all" approach to macroeconomic policy that is inappropriate for many countries.

One of the ways of building strategic flexibility and reducing economic exposure involves contracting out manufacturing.This kind of strategy may be suited for low-value-added manufacturing than high-value-added manufacturing.

When the foreign exchange market determines the relative value of a currency,the country is said to adhere to a _____ exchange rate regime.

Before the Asian crisis of 1997,the nature of exports from Southeast Asian countries had shifted from semiconductors and consumer electronics to basic materials and products such as textiles.

In response to the global financial crisis of 2008-2009,the IMF began to urge countries to adopt policies that included fiscal stimulus and monetary easing.