International Business Charles Hill 12th Edition -Test Bank

Chapter 11   The International Monetary System

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

Answer:  TRUE

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

Difficulty: 1 Easy

Topic:  The History of the Global Monetary System

Learning Objective:  11-01 Describe the historical development of the modern global monetary system.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

2) The gold standard called for fixed exchange rates against the U.S. dollar.

Answer:  FALSE

Explanation:  Pegging currencies to gold and guaranteeing convertibility is known as the gold standard. By 1880, most of the world’s major trading nations, including Great Britain, Germany, Japan, and the United States, had adopted the gold standard.

Difficulty: 1 Easy

Topic:  The History of the Global Monetary System

Learning Objective:  11-01 Describe the historical development of the modern global monetary system.

Bloom’s:  Understand

AACSB:  Knowledge Application

Accessibility:  Keyboard Navigation

3) The fixed exchange rate system established at Bretton Woods failed due to speculative pressures on the U.S. dollar.

Answer:  TRUE

Explanation:  The U.S. dollar was the only currency that could be converted into gold in the fixed exchange rate system established at Bretton Woods. As the currency that served as the reference point for all others, the dollar occupied a central place in the system. The system failed when its key currency, the U.S. dollar, faced speculative pressure.

Difficulty: 2 Medium

Topic:  The History of the Global Monetary System

Learning Objective:  11-01 Describe the historical development of the modern global monetary system.

Bloom’s:  Understand

AACSB:  Knowledge Application

Accessibility:  Keyboard Navigation

4) Gold was declared as the formal reserve asset in the Jamaica agreement of 1976.

Answer:  FALSE

Explanation:  In the Jamaica agreement, gold was abandoned as a reserve asset. The IMF returned its gold reserves to members at the current market price, placing the proceeds in a trust fund to help poor nations.

Difficulty: 1 Easy

Topic:  The History of the Global Monetary System

Learning Objective:  11-01 Describe the historical development of the modern global monetary system.

Bloom’s:  Understand

AACSB:  Knowledge Application

Accessibility:  Keyboard Navigation

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

Answer:  FALSE

Explanation:  Under a floating exchange rate regime, market forces have produced a volatile dollar exchange rate. Governments have sometimes responded by intervening in the market—buying and selling dollars—in an attempt to limit the market’s volatility and to correct what they see as overvaluation or potential undervaluation of the dollar.

Difficulty: 1 Easy

Topic:  The History of the Global Monetary System

Learning Objective:  11-01 Describe the historical development of the modern global monetary system.

Bloom’s:  Understand

AACSB:  Knowledge Application

Accessibility:  Keyboard Navigation

6) The agreement reached at Bretton Woods established the International Monetary Fund (IMF) and the World Bank.

Answer:  TRUE

Explanation:  The agreement reached at Bretton Woods established two multinational institutions—the International Monetary Fund (IMF) and the World Bank.

Difficulty: 1 Easy

Topic:  The Role of the World Bank and the International Monetary Fund in the International Monetary System

Learning Objective:  11-02 Explain the role played by the World Bank and the IMF in the international monetary system.

Bloom’s:  Remember

AACSB:  Knowledge Application

Accessibility:  Keyboard Navigation

7) After the agreement reached at Bretton Wood, the dollar was the only currency that could be convertible into gold.

Answer:  TRUE

Explanation:  Only the dollar remained convertible into gold—at a price of $35 per ounce. Each country decided what it wanted its exchange rate to be vis-à-vis the dollar and then calculated the gold par value of the currency based on that selected dollar exchange rate.

Difficulty: 1 Easy

Topic:  The Role of the World Bank and the International Monetary Fund in the International Monetary System

Learning Objective:  11-02 Explain the role played by the World Bank and the IMF in the international monetary system.

Bloom’s:  Remember

AACSB:  Knowledge Application

Accessibility:  Keyboard Navigation

8) Implementing a fixed exchange rate regime increases the price inflation in countries.

Answer:  FALSE

Explanation:  A fixed exchange rate regime imposes monetary discipline on countries, thereby curtailing price inflation.

Difficulty: 1 Easy

Topic:  The Role of the World Bank and the International Monetary Fund in the International Monetary System

Learning Objective:  11-02 Explain the role played by the World Bank and the IMF in the international monetary system.

Bloom’s:  Understand

AACSB:  Knowledge Application

Accessibility:  Keyboard Navigation

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

Answer:  TRUE

Explanation:  World Bank offers low-interest loans to risky customers whose credit rating is often poor, such as the governments of underdeveloped nations.

Difficulty: 1 Easy

Topic:  The Role of the World Bank and the International Monetary Fund in the International Monetary System

Learning Objective:  11-02 Explain the role played by the World Bank and the IMF in the international monetary system.

Bloom’s:  Remember

AACSB:  Knowledge Application

Accessibility:  Keyboard Navigation

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

Answer:  FALSE

Explanation:  Speculation can make exchange rates volatile in the floating exchange rate system. Speculation also adds to the uncertainty surrounding future currency movements that characterizes floating exchange rate regimes. A fixed exchange rate eliminates such uncertainty.

Difficulty: 2 Medium

Topic:  Fixed versus Floating Exchange Rate Systems

Learning Objective:  11-03 Compare and contrast the differences between a fixed and a floating exchange rate system.

Bloom’s:  Understand

AACSB:  Knowledge Application

Accessibility:  Keyboard Navigation