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Dashboard  IFM_S3(2019-2020)DH43ISB-1  S2-2020 IFM Online Quiz  IFM Quizzes C2

Started on Saturday, 20 June 2020, 9:37 PM

State Finished
Completed on Saturday, 20 June 2020, 9:55 PM
Time taken 18 mins 44 secs

Question 1 A currency board arrangement is

Complete
Select one:
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a. when the country belongs to a monetary or currency union in which the same
legal tender is shared by the members of the union.
b. a monetary regime based on an explicit legislative commitment to exchange
domestic currency for a specified foreign currency at a fixed exchange rate,
combined with restrictions on the issuing authority to ensure the fulfillment of its
legal obligation.

c. where the country pegs its currency at a fixed rate to a major currency where the
exchange rate fluctuates within a narrow margin of less than one percent.

d. when the currency of another country circulates as the sole legal tender.

Question 2 Advantages of a flexible exchange rate include which of the following?

Complete
Select one:
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a. The government can use monetary and fiscal policies to pursue whatever
economic goals it chooses.

b. Easier external adjustments.

c. National policy autonomy.

d. all of the options

Question 3 An "international" gold standard can be said to exist when
Complete
Select one:
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a. gold alone is assured of unrestricted coinage.

b. all of the options

c. gold may be freely exported or imported.

d. there is two-way convertibility between gold and national currencies at stable

ratios.

Question 4 Assume that a country is on the gold standard. In order to support unrestricted
Complete convertibility into gold, banknotes need to be backed by a gold reserve of some
minimum stated ratio. In addition,
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Select one:
a. the domestic money stock should rise and fall as gold flows in and out of the
country and the central bank can control the money supply by buying or selling the
foreign currencies.

b. the domestic money stock should rise and fall as gold flows in and out of the
country.

c. none of the options

d. the central bank can control the money supply by buying or selling the foreign
currencies.
Question 5 Consider the supply-demand framework for the British pound relative to the U.S. dollar
Complete shown in the following chart. The exchange rate is currently $1.80 = £1.00. Which of the
following is correct?
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Select one:
a. Under a flexible exchange rate regime, the U.S. dollar will depreciate to an
exchange rate of $1.90 = £1.00.

b. At an exchange rate of $1.80 = £1.00, supply for British pounds exceeds

demand.

c. At an exchange rate of $1.80 = £1.00, demand for British pounds exceeds

supply.
d. At an exchange rate of $1.80 = £1.00, demand for British pounds exceeds
supply. Additionally, under a flexible exchange rate regime, the U.S. dollar will
depreciate to an exchange rate of $1.90 = £1.00.

Question 6 Corporations today are operating in an environment in which exchange rate changes
Complete may adversely affect their competitive positions in the marketplace. This situation, in
turn, makes it necessary for many firms to
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Select one:
a. none of the options

b. carefully measure their exchange risk exposure.

c. carefully manage and measure their exchange risk exposure.

d. carefully manage their exchange risk exposure.
Question 7 During the period of the classical gold standard (1875-1914) there were
Complete
Select one:
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a. stable exchange rates.

b. volatile exchange rates.

c. highly volatile exchange rates.

d. moderately volatile exchange rates.

e. no exchange rates.

Question 8 Gresham's Law states that

Complete
Select one:
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a. 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.

b. none of the options.

c. bad money drives good money out of circulation.

d. good money drives bad money out of circulation.

Question 9 Monetary policy for the countries using the euro as a currency is now conducted by
Complete
Select one:
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a. the Bundesbank.

b. none of the options

c. European Central Bank.

d. the Federal Reserve.

Question 10 Once capital markets are integrated, it is difficult for a country to maintain a fixed
Complete exchange rate. Why?

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Select one:
a. none of the options

b. Because of the Tobin Tax.

c. The market forces may be stronger than the exchange rate intervention that the
government can muster.
d. Portfolio managers will not invest in countries with fixed exchange rates.
Question 11 One potential drawback of the gold standard is that
Complete
Select one:
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a. the world economy can be subject to inflationary pressure without changes in the
supply of monetary gold.

b. all of the options

c. gold is scarce.
d. the world economy can be subject to deflationary pressure due to the limited
supply of monetary gold.

Question 12 Prior to the 1870s, both gold and silver were used as international means of payment
Complete 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
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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?

Select one:
a. 1 German mark = $3

b. 1 German mark = $2

c. 1 German mark = $1
d. 1 German mark = $0.50

Question 13 Suppose that Britain pegs the pound to gold at six pounds per ounce, whereas the
Complete exchange rate between pounds and U.S. dollars is $5 = £1. What would an ounce of
gold be worth in U.S. dollars?
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Select one:
a. $29.40

b. $1.20

c. $30.00
d. $0.83

Question 14 Suppose that Britain pegs the pound to gold at six pounds per ounce, whereas the
Complete exchange rate between pounds and U.S. dollars is $1 = £5. What would an ounce of
gold be worth in U.S. dollars?
Marked out of 1.0

Select one:
a. $1.20

b. $0.42

c. $1.74
d. $1.22
Question 15 Suppose that Britain pegs the pound to gold at the market price of £6 per ounce, and
Complete the United States pegs the dollar to gold at the market price of $36 per ounce. If the
official exchange rate between pounds and U.S. dollars is $5 = £1. Which of the
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following trades is profitable?

Select one:
a. Start with $100 and buy gold. Sell the gold for £16.67. Sell the pounds at the
official exchange rate.

b. Start with £100 and buy gold. Sell the gold for $600.

c. Start with £100 and trade for $500 at the official exchange rate. Redeem the
$500 for 13.89 ounces of gold. Trade the gold for £83.33.

d. Start with $500 and trade for £100 at the official exchange rate. Redeem the
£100 for ounces of gold. Trade the gold for $600.

Question 16 Suppose that country A and country B are both on a bimetallic standard. In country A
Complete 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
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is allowed between countries A and B, is this a sustainable framework?

Select one:
a. There is not enough information to make an informed determination.
b. No

c. Yes

Question 17 Suppose that the pound is pegged to gold at £20 per ounce and the dollar is pegged to
Complete 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
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situation? Hint: assume that you have $350 available for investment.

Select one:
a. none of the options
b. 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.

c. 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.

d. both of the options

Question 18 Suppose that the United States is on a bimetallic standard at $30 to one ounce of gold
Complete and $2 for one ounce of silver. If new silver mines open and flood the market with silver,

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Select one:
a. none of the options.

b. no change will take place since citizens could exchange their gold currency for
silver currency at any time.

c. only the silver currency will circulate.

d. only the gold currency will circulate.

Question 19 Suppose that your country officially defines gold as ten times more valuable than silver
Complete (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
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only eight times as much as silver,

Select one:
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.

c. none of the options.

d. the central bank could go broke if enough arbitrageurs attempt to take advantage
of the pricing disparity, but will more likely make money since they are overpricing
gold

Question 20 The Bretton Woods system was named after

Complete
Select one:
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a. Bretton Woods, New Hampshire, where the Articles of Agreement of the
International Monetary Fund (IMF) were hammered out.
b. the treasury secretary of the United States in 1945, Bretton Woods.

c. the treasury secretary of the United States in 1945, Bretton Woods, as well as
Bretton Woods, New Hampshire, where the Articles of Agreement of the
International Monetary Fund (IMF) were hammered out.

d. none of the options

Question 21 The choice between the alternative exchange rate regimes (fixed or floating) is likely to
Complete involve a trade-off between

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Select one:
a. unemployment and inflation.

b. balance of payments autonomy and inflation.

c. exchange rate uncertainty and national policy autonomy.

d. national monetary policy autonomy and international economic integration.

Question 22 The gold standard still has ardent supporters who believe that it provides
Complete
Select one:
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a. monetary policy autonomy.

b. an effective hedge against price inflation.

c. all of the options

d. fixed exchange rates between all currencies.

Question 23 The international monetary system can be defined as the institutional framework within
Complete which

Marked out of 1.0

Select one:
a. movement of capital is accommodated.

b. all of the options

c. exchange rates among currencies are determined.

d. international payments are made.

Question 24 The international monetary system went through several distinct stages of evolution.
Complete These stages are summarized, in alphabetic order, as follows:
(i) Bimetallism
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(ii) Bretton Woods system
(iii) Classical gold standard
(iv) Flexible exchange rate regime
(v) Interwar period
The chronological order that they actually occurred is:

Select one:
a. (v), (ii), (i), (iii), and (iv)

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

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

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

Question 25 The monetary system of bimetallism is unstable. Due to the fluctuation of the
Complete commercial value of the metals,

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Select one:
a. none of the options

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

Question 26 Under a flexible exchange rate regime, governments can retain monetary policy
Complete independence because the external balance will be achieved by

Marked out of 1.0

Select one:
a. the price-specie flow mechanism.

b. the exchange rate adjustments.

c. none of the options

d. the Triffin paradox.

Question 27 Under a gold standard, if Britain exports more to France than France exports to Great
Complete Britain,

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Select one:
a. such international imbalances of payment will be corrected automatically.

b. all of the options

c. net export from Britain will be accompanied by a net flow of gold in the opposite
direction.
d. this type of imbalance will not be able to persist indefinitely.

Question 28 Under a purely flexible exchange rate system

Complete
Select one:
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a. supply and demand set the exchange rates.

b. governments can set the exchange rate by buying or selling reserves and with
fiscal policy.

c. governments can set the exchange rate by buying or selling reserves.

d. governments can set exchange rates with fiscal policy.

Question 29 Under the Bretton Woods system
Complete
Select one:
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a. the U.S. dollar was the only currency that was fully convertible to gold.

b. All the choices are correct.

c. each country was responsible for maintaining its exchange rate within 1 percent
of the adopted par value by buying or selling foreign exchanges as necessary.

d. there was an explicit set of rules about the conduct of international monetary
policies.

Question 30 Under the gold standard, international imbalances of payment will be corrected
Complete automatically under the

Marked out of 1.0

Select one:
a. Gresham Exchange Rate regime.

b. European Monetary System.

c. Bretton Woods Accord.

d. Price-specie-flow mechanism.

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