Question 1

The IMF comprises of 50 member countries including all developed countries, and a few countries of Asia and Latin America.

Accepted Answer

This is not accurate. The IMF comprises of 190 member countries from all around the world.

Question 2

When an exchange rate is established as a fixed peg, active intervention may be required to maintain the target-pegged rate.

Accepted Answer

Active intervention, such as buying or selling foreign currency, may be necessary to maintain the fixed pegged rate.

Question 3

Under a floating exchange-rate system, a country needs to pay more attention to the economic policies of the rest of the world.

Accepted Answer

The answer of Under a floating exchange-rate system, a country...

Question 4

A fixed exchange rate can be an equilibrium rate even if there is a permanent shift in the foreign exchange market supply and demand curves.

Accepted Answer

A permanent shift in the foreign exchange market supply and demand curves would result in a new equilibrium exchange rate. A fixed exchange rate would no longer be an equilibrium rate in this scenario.

Question 5

Fixed exchange rates allow countries to formulate their economic policies independently of other nations.

Accepted Answer

Fixed exchange rates require countries to coordinate their economic policies with other nations, as changes in one country's policies can affect the exchange rates and economic conditions of other countries in the fixed system.

Question 6

A downward-sloping demand curve for Korean won in terms of Canadian dollars indicates that the higher the dollar price of Korean won, the more won will be demanded.

Accepted Answer

A downward-sloping demand curve for Korean won in terms of Canadian dollars indicates that the higher the dollar price of Korean won, the less won will be demanded. This is because as the price of Korean won increases relative to the Canadian dollar, it becomes more expensive for Canadians to buy Korean goods and services, decreasing the quantity demanded.

Question 7

Demand for U.S.dollars by speculators is likely to increase if the dollar is expected to depreciate in the near future.

Accepted Answer

If speculators expect the dollar to depreciate, they would try to sell off their existing dollar positions, not increase their demand for dollars.

Question 8

The World Bank was created to help finance economic development in poor countries.

Accepted Answer

The World Bank was established in 1944 with the goal of providing financial assistance to developing countries to support economic development and reduce poverty.

Question 9

An increase in the demand for rubles causes the ruble to appreciate.

Accepted Answer

When there is an increase in demand for a currency, it causes the currency to appreciate or strengthen in value. Therefore, an increase in demand for rubles would cause the ruble to appreciate.

Question 10

If the official gold value of the Australian dollar changes from 470 Australian dollars per ounce to 493 Australian dollars per ounce, we can say that the Australian dollar has appreciated in value.

Accepted Answer

The increase in the amount of Australian dollars needed to buy an ounce of gold indicates that the Australian dollar has depreciated in value, as it now takes more dollars to purchase the same amount of gold.

Question 11

No currency ever appreciated or depreciated under the Bretton Woods system as it was based on a system of fixed exchange rates.

Accepted Answer

Currency under the Bretton Woods system was fixed to the US dollar, but the US dollar itself was allowed to appreciate or depreciate in value relative to gold, which led to fluctuations in the value of other currencies.

Question 12

Under both the gold standard and the gold exchange standard countries bought and sold U.S.dollars to maintain a fixed exchange rate with the dollar.

Accepted Answer

Under the gold standard, countries maintained a fixed exchange rate through the direct exchange of gold, not U.S. dollars. The gold exchange standard involved holding U.S. dollars as reserves to maintain a fixed exchange rate, but this was distinct from the direct exchange of gold under the original gold standard.

Question 13

The euro floats against other currencies, but the member nations of the euro have no separate national money.For this reason, Spain, that uses the euro as its currency is listed under the managed float arrangement.

Accepted Answer

The statement is incorrect. Spain is not listed under a managed float arrangement because it is a member nation of the euro and uses the euro as its currency, which floats against other currencies.

Question 14

World Bank funds are largely acquired through interest earned on the deposits of member nations.

Accepted Answer

The World Bank raises funds through a variety of sources, including capital markets, borrowing from member countries, and income from its lending activities. They do not rely solely on interest earned on member nation deposits.

Question 15

Appreciation of the dollar means that now it takes more dollars to buy one unit of foreign currency.

Accepted Answer

Appreciation of the dollar means the value of the dollar has increased in comparison to other currencies, so it now takes fewer dollars to buy one unit of foreign currency.

Question 16

Fixed exchange rates serve as a constraint on inflationary government policies.

Accepted Answer

Fixed exchange rates limit the government's ability to print more money to finance its expenses, as this would cause the value of the currency to drop relative to other currencies. This constraint can help prevent inflationary policies from being implemented.

Question 17

Because of their greediness, speculators are considered bad for exchange-rate markets.

Accepted Answer

Speculators are repeatedly accused of making exchange-rate markets more volatile and unstable due to their speculative activities. They are criticized for their greediness and their tendency to push exchange rates in their favor, causing fluctuations in the market that can harm the economy.

Question 18

The gold standard ended in the 1970s because the gold supplies failed to keep pace with the increase in money supplies required for industrialization and rapid economic growth witnessed in this era.

Accepted Answer

The question is not related to the given figure depicting the foreign exchange market for British pounds traded for U.S. dollars. The question is about the gold standard, which is not mentioned or depicted in the figure. However, the statement in the question is false because the gold standard ended primarily due to the difficulties countries faced in maintaining fixed exchange rates and the need for more flexibility in monetary policy. The increase in money supplies for industrialization and economic growth was not the primary reason for the end of the gold standard.

Question 19

The exchange-rate arrangement that emerged from the Bretton Woods conference is often called a managed float standard.

Accepted Answer

The figure does not provide any information about the exchange-rate arrangement that emerged from the Bretton Woods conference, so it is not possible to determine whether the statement is true or false based on the given information.

Question 20

The exchange rate affects the trade in goods and services between California and NewYork.

Accepted Answer

The foreign exchange market for British pounds traded for U.S. dollars does not directly affect the trade in goods and services between California and New York as they are both part of the same country and use the same currency (U.S. dollar). However, an increase in the exchange rate between British pounds and U.S. dollars could indirectly affect the trade relationship between California and New York as it could impact the overall strength of the U.S. dollar and the competitiveness of U.S. exports.

Quiz 57: Exchange Rates and Financial Links Between Countries