30 Questions
What was the main goal of the Bretton Woods agreement?
To avoid a repetition of the chaos that occurred between the wars
What was the role of the International Monetary Fund (IMF) in the Bretton Woods System?
Maintaining order in the international monetary system
What led to the collapse of the Bretton Woods system in 1973?
The abandonment of the gold standard by the United States
What was the significance of the Jamaica Agreement signed in 1976?
Declared floating rates acceptable and abandoned gold as a reserve asset
What is a characteristic of a pegged exchange rate system?
Imposes monetary discipline on the country and leads to low inflation
What is the primary function of a currency board?
To hold reserves of foreign currency equal to at least 100 percent of domestic currency issued
What is the impact of the collapse of the Bretton Woods system on exchange rates?
Exchange rates have become much more volatile and less predictable
What is the primary reason for countries to adopt a pegged exchange rate system?
Imposing monetary discipline on the country and leading to low inflation
What is the current exchange rate regime followed by 21% of IMF members?
Free-float policy
What is the role of the IMF in crisis management after the collapse of Bretton Woods?
Lending money to countries experiencing financial crises
What is a currency crisis?
A situation where a speculative attack causes sharp depreciation in the value of a currency
What is a banking crisis?
A loss of confidence in the banking system leading to a run on banks
What is a foreign debt crisis?
A situation where a country cannot service its foreign debt obligations
What are some causes of financial crises?
Widening current account deficit
What is a concern raised by critics of the IMF?
Inappropriate policies
What is moral hazard in the context of the IMF?
People behave recklessly because they know they will be saved if things go wrong
What is an observation about IMF policies?
They had been counterproductive in some cases
What is the focus of currency management for companies?
Adjusting foreign exchange transactions to government intervention and speculative activity
What should companies pursue to increase their strategic flexibility in the face of unpredictable exchange rate movements?
Business strategies
What should international business promote in the international monetary system?
Minimization of volatile exchange rate movements
What is the main feature of a floating exchange rate regime?
The relative value of a currency is determined by the foreign exchange market
What was the main function of the gold standard?
To ensure balance-of-trade equilibrium between nations
What happened to the gold standard by 1939?
It had collapsed
What was the response of the U.S., Great Britain, and France to the gold standard after 1918?
They returned to it at different times
What is the main characteristic of a managed 'dirty' float system?
The currency value is determined by market forces but managed by the government
What is the value of the currency fixed relative to in a pegged exchange rate system?
A reference currency
What was the gold par value used for?
To determine the amount of currency needed to purchase one ounce of gold
What was the mechanism provided by the gold standard to address trade imbalances?
It provided a mechanism to pull trade imbalances back into balance-of-trade equilibrium
What is the European Monetary System designed by the EU primarily for?
To promote monetary cooperation and stability in Europe
What is the strength of the gold standard in achieving balance-of-trade equilibrium?
It provides a powerful mechanism to pull trade imbalances back into balance-of-trade equilibrium
Test your knowledge of the international monetary system with this quiz. Learn about floating and pegged exchange rate regimes, and understand how countries govern exchange rates. See how much you know about the laws of supply and demand in the foreign exchange market.
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