Exam 9: International Monetary Relations

A) it is easy to exclude people from using a currency.
B) it only has benefits for a minority of people who buy and sell goods internationally.
C) there are no downsides to providing a national currency.
D) people cannot be excluded from the monetary system or charged for using it.

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A) Monetary funds
B) Adjustable pegs
C) Regulatory banks
D) Central banks

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A) The Bretton Woods System
B) The British pound
C) The euro
D) The classical gold standard

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A) depreciated
B) appreciated.
C) been devalued.
D) been realized.

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A) the Argentine peso has increased in value relative to the dollar.
B) the Argentine peso has increased in value relative to all currencies but the dollar.
C) the Argentine peso has decreased in value relative to the dollar.
D) the Argentine peso has decreased in value relative to all currencies but the dollar.

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A) Each government has an incentive to cheat by pegging its currency; the result is a world where every government wants to peg its currency to someone else.
B) Each government has an incentive to cheat by devaluing its currency,and the result is that all governments become worse off because of competitive devaluations.
C) Each government faces a choice between fixing its currency's exchange rate and letting the currency float freely.
D) All governments have a clear incentive to create an international government to regulate monetary affairs even though this will make them captive to its rules.

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B

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A) Poorer countries peg their interest rates to the exchange rate.
B) Countries try to lure foreign investors with higher interest rates.
C) Lowering interest rates can reduce the country's trade deficit.
D) Increasing interest rates can lead to an appreciation of the currency.

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A) Larger countries want to reduce the possibility of a global currency crisis.
B) Smaller countries want to reduce the instability of their own currencies.
C) The International Monetary Fund forces smaller countries to adopt the U.S.dollar when they have serious currency crises.
D) Larger countries force smaller countries to adopt their currencies in order to facilitate trade.

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A) Fixed exchange rates limit the inflation small countries are prone to.
B) Fixed exchange rates provide more price stability and reduce risks for exports.
C) Small countries do not have enough market size to adequately control their own flexible exchange rates when trade flows change.
D) Small countries are unable to resist pressure from the United States to fix their currency to the dollar.

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A) An artificially weak currency puts pressure on producers in other countries.
B) Unstable currencies cause risks to everyone involved in international exchange.
C) An artificially weak currency reduces the purchasing power of consumers in other countries.
D) The sudden withdraw of investments from a country can lead to a currency crisis.

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A

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A) Canada
B) Brazil
C) Panama
D) Germany

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A) Each country would rather address its own currency problems without outside interference.
B) Countries usually want to create a single global currency.
C) There is no international government to coordinate monetary relations.
D) Governments have an interest in creating a global government.

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Answers will vary.Students may define floating exchange rate and fixed exchange rate.They may discuss how floating exchange rates increase the flexibility of domestic monetary policy but increase uncertainty in its international interactions.They may discuss how fixed exchange rates increase stability at the domestic level and predictability in international interactions.The country's interests will help determine the type of exchange rate.

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