Monetary Unions and Exchange Rate Regimes Quiz
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Questions and Answers

What are the key elements that should characterize a monetary union?

  • Total and irreversible convertibility of currencies, elimination of margins of fluctuation in exchange rates, irrevocable fixing of parity rates, and complete liberation of movements of capital (correct)
  • Limited convertibility of currencies, no elimination of margins of fluctuation in exchange rates, revocable fixing of parity rates, and complete liberation of movements of capital
  • Partial convertibility of currencies, allowance of margins of fluctuation in exchange rates, revocable fixing of parity rates, and restrictions on movements of capital
  • Total and irreversible convertibility of currencies, elimination of margins of fluctuation in exchange rates, revocable fixing of parity rates, and complete liberation of movements of capital

    • What are the benefits of adopting a single currency in a monetary union?

  • No impact on transaction costs and accounting costs
  • Increase in bid-ask spreads and commissions on foreign exchange transactions
  • Elimination of transaction costs and accounting costs (correct)
  • Increase in transaction costs and accounting costs

    • What is the role of a single central bank or a system of central banks in a monetary union?

  • Eliminating the need for monetary policy
  • Implementing individual country-specific monetary policies
  • Restricting the flow of capital within the union
  • Determining union-wide monetary policy (correct)

    • What is the implication of a sole external exchange rate policy in a monetary union?

    <p>It means the union has a single external exchange rate policy</p> Signup and view all the answers

    What are the costs associated with adopting a single currency in a monetary union?

    <p>Inflicts costs on member countries</p> Signup and view all the answers

    What is the primary implication of a monetary union having a single currency or several currencies that are fully convertible at an irrevocably fixed exchange rate?

    <p>Elimination of margins of fluctuation in exchange rates</p> Signup and view all the answers

    What is a key element characterizing a monetary union or currency union?

    <p>Union-wide monetary policy determined by a single central bank or a system of central banks</p> Signup and view all the answers

    What are the costs associated with adopting a single currency in a monetary union?

    <p>Introduction of bid-ask spreads and commissions on foreign exchange transactions</p> Signup and view all the answers

    What is a benefit of adopting a single currency in a monetary union?

    <p>Elimination of transaction costs and accounting costs</p> Signup and view all the answers

    What is the implication of a monetary union having a sole external exchange rate policy?

    <p>Elimination of margins of fluctuation in exchange rates</p> Signup and view all the answers

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