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Question 1

Which of the following is not seen as an advantage of the gold standard?

a) A nation's money supply was exogenous.

b) Inflation is unlikely to emerge as a significant problem.

c) No country need serve at the center of this fixed exchange rate system.

d) The monetary mechanism has credibility.

Question 2

With the decision to let sterling float in September 1931, the gold standard came to an end. The decision to let sterling float was taken because...

a) Silver was significantly overvalued with respect to gold at the official parity

b) Silver was significantly undervalued with respect to gold at the official parity.

c) Sterling's parity was not properly aligned with its price level and was undervalued.

d) British official liabilities exceeded Britain's gold reserves.

Question 3

The Bretton Woods System is referred to as the "gold exchange standard" because...

a) …gold was the fundamental standard of value based on the ability of the US to maintain the parity of $35 per ounce.

b) ...it replaced sterling which had been the silver exchange standard.

c) ...all central banks exchanged their foreign exchange reserves for gold to become members of the system.

d) …gold could be exchanged between countries, all other capital was controlled.

Question 4

The fatal flaw of the Bretton Woods system was that...

a) ...sterling was overvalued and the French franc was undervalued leading to a loss of gold reserves by Great Britain.

b) ...the growth of the global economy brought with it a demand for dollars to be held as international reserves that exceeded the US gold reserves.

c) ...the World Bank was underfunded by member central banks.

d) ...it was too weak to survive simultaneous speculative attacks on the Italian and UK currencies in 1992.

Question 5

The functions of the International Monetary Fund include all of the following except:

a) To provide emergency loans to countries facing balance of payments problems.

b) To monitor macroeconomic developments continuously in member countries.

c) To serve as the world central bank

d) To provide a line of credit for each member country

Question 6

The following three aspects of a monetary system are jointly incompatible: monetary policy independence; (A)_____ exchange rates; and (B)_____ .

a) (A) floating ; (B) capital controls

b) (A) floating ; (B) free capital mobility

c) (A) fixed ; (B) capital controls

d) (A) fixed ; (B) free capital mobility

Question 7

Special drawing rights are NOT…

a) …a credit line allocated by the IMF to member countries according to each country's quota.

b) …backed by US dollars.

c) …the IMF's unit of account.

d) …a basket of four currencies.

Oxford University Press, Online Resource Centre, Chapter 19.

Chapter 19