International Monetary System

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Question 1
Free
Multiple Choice

The international monetary system can be defined as the institutional framework within which

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A

international payments are made.

B

movement of capital is accommodated.

C

exchange rates among currencies are determined.

D

all of the above

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Question 2
Free
Multiple Choice

Corporations today are operating in an environment in which exchange rate changes may adversely affect their competitive positions in the marketplace.This situation,in turn,makes it necessary for many firms to

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A

carefully manage their exchange risk exposure.

B

carefully measure their exchange risk exposure.

C

both a) and b)

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Question 3
Free
Multiple Choice

The international monetary system went through several distinct stages of evolution.These stages are summarized,in alphabetic order,as follows: (i)- Bimetallism
(ii)- Bretton Woods system
(iii)- Classical gold standard
(iv)- Flexible exchange rate regime
(v)- Interwar period
The chronological order that they actually occurred is:

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A

(iii), (i), (iv), (ii), and (v)

B

(i), (iii), (v), (ii), and (iv)

C

(vi), (i), (iii), (ii), and (v)

D

(v), (ii), (i), (iii), and (iv)

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Question 4
Free
Multiple Choice

In the United States,bimetallism was adopted by the Coinage Act of 1792 and remained a legal standard until 1873,

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A

when Congress dropped the silver dollar from the list of coins to be minted.

B

when Congress dropped the twenty-dollar gold piece from the list of coins to be minted.

C

when gold from the California gold rush drove silver out of circulation.

D

when gold from the California gold rush drove gold out of circulation.

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Question 5
Free
Multiple Choice

The monetary system of bimetallism is unstable.Due to the fluctuation of the commercial value of the metals,

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A

the metal with a commercial value lower than the currency value tends to be used as metal and is withdrawn from circulation as money (Gresham's Law).

B

the metal with a commercial value higher than the currency value tends to be used as money (Gresham's Law).

C

the metal with a commercial value higher than the currency value tends to be used as metal and is withdrawn from circulation as money (Gresham's Law).

D

none of the above

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Question 6
Multiple Choice

In the 1850s the French franc was valued by both gold and silver,under the official French ratio which equated a gold franc to a silver franc 15½ times as heavy.At the same time,the gold from newly discovered mines in California poured into the market,depressing the value of gold.As a result,

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A
the franc effectively became a silver currency.
B
the franc effectively became a gold currency.
C
silver became overvalued under the French official ratio.
D
answers a) and c) are correct
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Question 7
Multiple Choice

Gresham's Law states that

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A
bad money drives good money out of circulation.
B
good money drives bad money out of circulation.
C
if a country bases its currency on both gold and silver, at an official exchange rate, it will be the more valuable of the two metals that circulate.
D
none of the above.
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Question 8
Multiple Choice

Suppose that the pound is pegged to gold at £20 per ounce and the dollar is pegged to gold at $35 per ounce.This implies an exchange rate of $1.75 per pound.If the current market exchange rate is $1.80 per pound,how would you take advantage of this situation? Hint: assume that you have $350 available for investment.

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A
Start with $350.Buy 10 ounces of gold with dollars at $35 per ounce.Convert the gold to £200 at £20 per ounce.Exchange the £200 for dollars at the current rate of $1.80 per pound to get $360.
B
Start with $350.Exchange the dollars for pounds at the current rate of $1.80 per pound.Buy gold with pounds at £20 per ounce.Convert the gold to dollars at $35 per ounce.
C
a) and b) both work
D
None of the above
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Question 9
Multiple Choice

Suppose that the pound is pegged to gold at £20 per ounce and the dollar is pegged to gold at $35 per ounce.This implies an exchange rate of $1.75 per pound.If the current market exchange rate is $1.60 per pound,how would you take advantage of this situation? Hint: assume that you have $350 available for investment.

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A
Start with $350.Buy 10 ounces of gold with dollars at $35 per ounce.Convert the gold to £200 at £20 per ounce.Exchange the £200 for dollars at the current rate of $1.80 per pound to get $360.
B
Start with $350.Exchange the dollars for pounds at the current rate of $1.60 per pound.Buy gold with pounds at £20 per ounce.Convert the gold to dollars at $35 per ounce.
C
a) and b) both work
D
None of the above
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Question 10
Multiple Choice

Suppose that the United States is on a bimetallic standard at $30 to one ounce of gold and $2 for one ounce of silver.If new silver mines open and flood the market with silver,

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A
only the silver currency will circulate.
B
only the gold currency will circulate.
C
no change will take place since citizens could exchange their gold currency for silver currency at any time.
D
none of the above
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Question 11
Multiple Choice

Suppose that your country officially defines gold as ten times more valuable than silver (i.e.the central bank stands ready to redeem the currency in gold and silver and the official price of gold is ten times the official price of silver).If the market price of gold is only eight times as much as silver.

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A
The central bank could go broke if enough arbitrageurs attempt to take advantage of the pricing disparity.
B
The central bank will make money since they are overpricing gold.
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Question 12
Multiple Choice

Prior to the 1870s,both gold and silver were used as international means of payment and the exchange rates among currencies were determined by either their gold or silver contents.Suppose that the dollar was pegged to gold at $30 per ounce,the French franc is pegged to gold at 90 francs per ounce and to silver at 9 francs per ounce of silver,and the German mark pegged to silver at 1 mark per ounce of silver.What would the exchange rate between the U.S.dollar and German mark be under this system?

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A
1 German mark = $2
B
1 German mark = $0.50
C
1 German mark = $3
D
1 German mark = $1
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Question 13
Multiple Choice

Prior to the 1870s,both gold and silver were used as international means of payment and the exchange rates among currencies were determined by either their gold or silver contents.Suppose that the dollar was pegged to gold at $30 per ounce,the French franc is pegged to gold at 90 francs per ounce and to silver at 6 francs per ounce of silver,and the German mark pegged to silver at 1 mark per ounce of silver.What would the exchange rate between the U.S.dollar and German mark be under this system?

Choose correct answer/s
A
1 German mark = $2
B
1 German mark = $0.50
C
1 German mark = $3
D
1 German mark = $1
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Question 14
Multiple Choice

Suppose that country A and country B are both on a bimetallic standard.In country A the ratio is 15 to one (i.e.an ounce of gold is worth 15 times as much as an ounce of silver in that currency),while in country B the ratio is ten to one.If the free flow of capital is allowed between countries A and B is this a sustainable framework?

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A
Yes
B
No
C
There is not enough information to make an informed determination.
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Question 15
Multiple Choice

Suppose that both gold and silver are used as international means of payment and the exchange rates among currencies are determined by either their gold or silver contents.Suppose that the dollar was pegged to gold at $20 per ounce,the Japanese yen is pegged to gold at 120,000 yen per ounce and to silver at 8,000 yen per ounce of silver,and the Australian dollar is pegged to silver at $5 per ounce of silver.What would the exchange rate between the U.S.dollar and Australian dollar be under this system?

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A
$1 U.S.= $1 Australian
B
$1 U.S.= $2 Australian
C
$1 U.S.= $3 Australian
D
None of the above
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Question 16
Multiple Choice

The United States adopted the gold standard in

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A
1776.
B
1879.
C
1864.
D
1973.
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Question 17
Multiple Choice

The gold standard still has ardent supporters who believe that it provides

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A
an effective hedge against price inflation.
B
fixed exchange rates between all currencies.
C
monetary policy autonomy.
D
all of the above
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Question 18
Multiple Choice

One potential drawback of the gold standard is that

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A
the world economy can be subject to deflationary pressure due to the limited supply of monetary gold.
B
the world economy can be subject to inflationary pressure without changes in the supply of monetary gold.
C
gold is scarce.
D
all of the above
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Question 19
Multiple Choice

The first full-fledged gold standard

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A
was not established until 1821 in Great Britain, when notes from the Bank of England were made fully redeemable for gold.
B
was not established until 1780 in the United States, when notes from the Continental Army were made fully redeemable for gold.
C
was established in 986 during the Han dynasty in China.
D
none of the above
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Question 20
Multiple Choice

An "international" gold standard can be said to exist when

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A
gold alone is assured of unrestricted coinage.
B
there is two-way convertibility between gold and national currencies at stable ratios.
C
gold may be freely exported or imported.
D
all of the above
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