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1、Lecture 2 - International Monetary System2-1 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website,
2、in whole or part.Lecture 2 (Chapter 2) International Monetary SystemMultiple Choice Questions1. The international monetary system can be defined as the institutional framework within which A. international payments are made. B. movement of capital is accommodated. C. exchange rates among currencies
3、are determined. D. all of the above2. 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 A. carefully manage their exchange risk exposure.
4、 B. carefully measure their exchange risk exposure. C. both a) and b)3. 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)- F
5、lexible exchange rate regime (v)- Interwar periodThe chronological order that they actually occurred is: 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)Lecture 2 - International Monetary System2-2 2012 by McG
6、raw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.4. In the United States, bimetallism wa
7、s adopted by the Coinage Act of 1792 and remained a legal standard until 1873, 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 s
8、ilver out of circulation. D. when gold from the California gold rush drove gold out of circulation.5. The monetary system of bimetallism is unstable. Due to the fluctuation of the commercial value of the metals, A. the metal with a commercial value lower than the currency value tends to be used as m
9、etal and is withdrawn from circulation as money (Greshams Law). B. the metal with a commercial value higher than the currency value tends to be used as money (Greshams Law). C. the metal with a commercial value higher than the currency value tends to be used as metal and is withdrawn from circulatio
10、n as money (Greshams Law). D. none of the above6. 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 15 times as heavy. At the same time, the gold from newly discovered mines in California poured into the mar
11、ket, depressing the value of gold. As a result, 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 correct7. Greshams Law states that A. bad money drives good money
12、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.Lecture 2 - International Monetary System2-3 2012 by Mc
13、Graw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.8. Suppose that the pound is pegged to
14、 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. A. Start with $
15、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 p
16、er ounce. Convert the gold to dollars at $35 per ounce. C. a) and b) both work D. None of the above9. 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 $
17、1.60 per pound, how would you take advantage of this situation? Hint: assume that you have $350 available for investment. 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 po
18、und 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 above10. Suppose that the United States is on a bimetallic standard a
19、t $30 to one ounce of gold and $2 for one ounce of silver. If new silver mines open and flood the market with silver, 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 curren
20、cy at any time. D. none of the aboveLecture 2 - International Monetary System2-4 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, d
21、istributed, or posted on a website, in whole or part.11. 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). I
22、f the market price of gold is only eight times as much as silver. 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.12. Prior to the 1870s, both gold and silver were used a
23、s 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
24、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? A. 1 German mark = $2 B. 1 German mark = $0.50 C. 1 German mark = $3 D. 1 German mark = $113. Prior to the 1870s, both gold and silver were used
25、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
26、 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? A. 1 German mark = $2 B. 1 German mark = $0.50 C. 1 German mark = $3 D. 1 German mark = $1Lecture 2 - International Monetary System2-5 2012 by M
27、cGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.14. Suppose that country A and countr
28、y 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 fram
29、ework? A. Yes B. No C. There is not enough information to make an informed determination.15. 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
30、 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 sys
31、tem? A. $1 U.S. = $1 Australian B. $1 U.S. = $2 Australian C. $1 U.S. = $3 Australian D. None of the above16. The United States adopted the gold standard in A. 1776. B. 1879. C. 1864. D. 1973.17. The gold standard still has ardent supporters who believe that it provides A. an effective hedge against
32、 price inflation. B. fixed exchange rates between all currencies. C. monetary policy autonomy. D. all of the aboveLecture 2 - International Monetary System2-6 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
33、any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.18. One potential drawback of the gold standard is that A. the world economy can be subject to deflationary pressure due to the limited supply of monetary gold. B. the w
34、orld economy can be subject to inflationary pressure without changes in the supply of monetary gold. C. gold is scarce. D. all of the above19. The first full-fledged gold standard A. was not established until 1821 in Great Britain, when notes from the Bank of England were made fully redeemable for g
35、old. 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 above20. An “international“ gold standard can be said to exist when A. gold alone is assure
36、d 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 above21. Under a gold standard, if Britain exported more to France than France exported to Great Britain, A. such internation
37、al imbalances of payment will be corrected automatically. B. this type of imbalance will not be able to persist indefinitely. C. net export from Britain will be accompanied by a net flow of gold in the opposite direction. D. all of the aboveLecture 2 - International Monetary System2-7 2012 by McGraw
38、-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.22. Suppose that Britain pegs the pound to
39、 gold at six pounds per ounce, whereas the exchange rate between pounds and U.S. dollars is $5 = 1. What should an ounce of gold be worth in U.S. dollars? A. $29.40 B. $30.00 C. $0.83 D. $1.2023. During the period of the classical gold standard (1875-1914) there were A. highly volatile exchange rate
40、s. B. volatile exchange rates. C. moderately volatile exchange rates. D. stable exchange rates. E. no exchange rates.24. The majority of countries got off gold in 1914 when A. the American Civil War ended. B. World War I broke out. C. World War II started. D. none of the above25. Suppose that the Br
41、itish pound is pegged to gold at 6 per ounce, whereas one ounce of gold is worth 12. Under the gold standard, any misalignment of the exchange rate will be automatically corrected by cross border flows of gold. Calculate the possible gains for buying 1,000, if the British pound becomes undervalued a
42、nd trades for 1.80. (Assume zero shipping costs). (Hint: Gold is first purchased using the devalued British pound from the Bank of England, then shipped to France and sold for 1,000 to the Bank of France). A. 55.56 B. 65.56 C. 75.56 D. 85.56Lecture 2 - International Monetary System2-8 2012 by McGraw
43、-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.26. Suppose that Britain pegs the pound to
44、 gold at the market price of 6 per ounce, and 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 following trades is profitable? A. Start with 100 and trade for $500 at the official exc
45、hange rate. Redeem the $500 for 13.89 ounces of gold. Trade the gold for 83.33. B. Start with $100 and buy gold. Sell the gold for 16.67. Sell the pounds at the official exchange rate. C. Start with 100 and buy gold. Sell the gold for $600. D. Start with $500 and trade for 100 at the official exchan
46、ge rate. Redeem the 100 for 16 2/3 ounces of gold. Trade the gold for $600.27. Assume that a country is on the gold standard. In order to support unrestricted convertibility into gold, banknotes need to be backed by a gold reserve of some minimum stated ratio. In addition, A. the domestic money stoc
47、k should rise and fall as gold flows in and out of the country. B. the central bank can control the money supply by buying or selling the foreign currencies. C. Both a) and b)28. Under the gold standard, international imbalances of payment will be corrected automatically under the A. Gresham Exchang
48、e Rate regime. B. European Monetary System. C. Price-specie-flow mechanism. D. Bretton Woods Accord.29. During the period between World War I and World War II, A. the major European powers and the U.S. returned to the gold standard and fixed exchange rates. B. while most countries abandoned the gold
49、 standard during World War I, international trade and investment flourished during the interwar period under a coherent international monetary system. C. the U.S. dollar emerged as the dominant world currency, gradually replacing the British pound for the role. D. None of the above.Lecture 2 - International Monetary System2-9 2012 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authori
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