The International Monetary System

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

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

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

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

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

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

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

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

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

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

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Question 11
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Adopting a pegged exchange rate regime increases the inflationary pressures in a country.

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Question 12
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A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate.

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Question 13
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Interest rates adjust automatically under a strict currency board system.

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Question 14
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The International Monetary Fund's original function was to provide a pool of money from which members could borrow in the short term.

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Question 15
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The IMF does not expect governments to meet any obligations except to pay back the money it borrows.

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Question 16
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In 2002, the IMF stepped in to help stabilize the value of the Brazilian currency on foreign exchange markets by lending it foreign currency. This constitutes a foreign debt crisis.

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Question 17
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Moral hazard arises when people behave recklessly without regard for the consequences.

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Question 18
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The current system of foreign exchange is a mixed system of government intervention and speculative activity.

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Question 19
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Firms cannot utilize the forward exchange market when they are faced with uncertainty about the future value of currencies.

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Question 20
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An effective business strategy to reduce economic exposure is to contract out high-value-added manufacturing.

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