Tutorial---with-answers

1、Topic 1: Introduction & International Monetary SystemIn the tutorial we will work through the multiple choice questions. The extra questions at the end are extra practice for your own study.MULTIPLE CHOICE QUESTIONS:1. were the earliest multinationals.(a) raw-material seekers(b) market seekers(c

2、) cost minimizers(d) oil companies(e) the Federal Reserve System of the U.S.2. World War I caused the suspension of the gold standard for fixed international exchange rates because the war(a) cost too much money.(b) interrupted the free movement of gold.(c) lasted too long.(d) used gold as the main

3、ingredient in armament plating.3. Under the terms of Bretton Woods countries tried to maintain the value of their currencies to within 1% of a hybrid security made up of the U.S. dollar, British pound, and Japanese yen.(a) True(b) False4. Which of the following led to the eventual demise of the fixe

4、d currency exchange rate regime worked out at Bretton woods?(a) Widely divergent national monetary and fiscal policies among member nations.(b) Differential rates of inflation across member nations.(c) Several unexpected economic shocks to member nations.(d) All of the above5. On May 1,2022 countrie

5、s joined the European Union enlarging it to atotal ofmembers.(a) 5 -15(b) 217(c) 10 25(d) 20 306. The 10 members that joined the European Union in May 2022 automatically assumed the euro as their national currency upon joining.(a) True(b) False7. The Euro currency is fixed against other currencies o

6、n the international currency exchange markets, but allows member country currencies to float against each other.(a) True(b) False8. According to the authors, what is the single most important mandate of the European Central Bank?(a) Promote international trade for countries within the European Union

7、.(b) Price, in Euros, all products for sale in the European Union.(c) Promote price stability within the European Union.(d) Establish an EMU trade surplus with the United States.9. The concept of the " Impossible Trinity “ or the inability to achieve simultaneously the goals of exchange rate st

8、ability, full financial integration, and monetary independence. If a country chooses to have a pure floating exchange rate regime, which two of the three goals is a country most able to achieve?(a) Monetary independence and exchange rate stability.(b) Exchange rate stability and full financial integ

9、ration.(c) Full financial integration and monetary independence.(d) A country cannot attain any of the exchange rate goals with a pure float exchange rate regime.10. A small economy country whose GDP is heavily dependent on trade with the United States could use a (an)exchange rate regime to minimiz

10、e the risk to their economy that could arise due to unfavorable changes in the exchange rate.(a) pegged exchange rate with the United States(b) pegged exchange rate with the Euro(c) independent floating(d) managed float11. On September 9, 2000 Ecuador officially replaced its national currency, the E

11、cuadorian sucre, with the U.S. dollar. This practice is known as.(a) bi-currencyism(b) sucrerization(c) a Yankee bailout(d) dollarization12. You have been hired as a consultant to the central bank for a country that has for many years suffered from repeated currency crises and depends heavily on the

12、 U.S. financial and product markets. Which of the following policies would have the greatest effectiveness for reducing currency volatility of the client country with the United States?(a) Dollarization.(b) An exchange rate pegged to the U. S. dollar.(c) An exchange rate with a fixed price per ounce

13、 of gold.(d) An internationally floating exchange rate.13. Under a fixed exchange rate regime, the government of the country is officially responsible for(a) intervention in the foreign exchange markets using gold and reserves.(b) setting the fixed/parity exchange rate.(c) maintaining the fixed/pari

14、ty exchange rate.(d) All of the above.14. Which of the following correctly identifies exchange rate regimes from less fixed to more fixed?(a) Independent floating, currency board arrangement, crawling pegs.(b) Independent floating, currency board arrangement, managed float.(c) Independent floating,

15、crawling pegs, exchange arrangements with no separate legal tender.(d) Exchange arrangements with no separate legal tender, currency board arrangement, crawling pegs.15. A currency that has increased in foreign exchange value relative to a floating rate currency has.(a) revalued(b) violated internat

16、ional trade agreements(c) appreciated(d) deteriorated16. Under the gold standard of currency exchange that existed from 1879 to 1914, an ounce of gold cost $20.67 in U.S. dollars and 4.2474 in Brit iih pounds. Therefore, the exchange rate of pounds per dollar under this fixed exchange regime was(a)

17、域.8665/$.(b) 珀.2055/$.(c) always changing because the price of gold was always changing.(d) unknown because there is not enough information to answer thisquestion.Answers1) A2) B3) B4) D5) C6) B7) B8) C9) C10) A11) D12) A13) D14) C15) C16) BEXTRA QUESTIONS:1. What are the various categories of multi

18、national firms and what is the motivation for international expansion of firms within each category?Raw materials seekers, market seekers and cost minimizers. The raw materials seekers go abroad to exploit the raw materials that can be found there. It just happens that nature didn ' t place all

19、natural resources domestically. Market seekers go overseas to produce and sell in foreign markets. The cost minimizers invest in lower cost production sites overseas in order to remain cost competitive both at home and abroad. In all cases, the firms involved recognize that the world is larger than

20、the homecountry and provides opportunities to gain additional supplies, sell more products or find lower cost sources of production.2. Under the gold standard, all national governments promised to follow the “ rules of the game. " This meant defending a fixed exchange rate. What did this promis

21、e imply about a countryoneyrsiupply?A country ' s money supply was limited to the amount of gold held by its central bank or treasury. For example, if a country had 1,000,000 ounces of gold and its fixed rate of exchange was 100 local currency units per ounce of gold, that country could have 100

22、,000,000 local currency units outstanding. Any change in its holdings of gold needed to be matched by a change in the number of local currency units outstanding.3. Briefly explain how the Gold standard worked.One of the main features of the Gold standard was the adoption of " mintparity which a

23、llowed free convertibility between domestic money and gold at that price. No restrictions were placed on the import or export of gold by private citizens, or on the use of gold for international transactions. The issue of national currency and coins was backed by gold. International arbitrage kept e

24、xchange rates within very narrow bands. Under the gold standard balance of payment disequilibrium is corrected by a counterflow of gold known as the PRICE-SPECIE FLOW MECHANISM.4. Discuss the advantages and disadvantages of the Gold standard.The advantages include: (1) since the supply of gold was r

25、estricted, inflation was not a problem; (2) any balance of payments disequilibrium was corrected through crossborder flow of gold (price-specie flow mechanism).Disadvantages include (1) deflation due to a restricted supply of gold; (2) since there were no set rules that governed the enforcement of t

26、he“ rules of the game courcould pursue economic policies that were incompatible with the gold standard.5. Briefly outline the main features of the Bretton Woods system.The main objectives of the Bretton Woods system were to achieve exchange rate stability and promote international trade and developm

27、ent. Its main features included: (1) The fixing of an official par value for domestic currency in terms of gold or a currency tied to gold as a numeraire (i.e. $US).(2) Keeping the exchange rate pegged within 1% of its par value. The par value could be adjusted unilaterally if the IMF concurs.(3) Sh

28、ort-run balance of payment imbalances being offset by the use of official reserves (usually in the form of US$) and IMF credits.The US$ in turn was pegged to gold at $35 per ounce. The US stood ready to buy gold at $35 and this meant that the US had to have a large stock of gold. By the end of WWII

29、in 1945, the US had 60% of the world stock.6. Why did the fixed exchange rate regime of 1945 -1973 eventually fail?The fixed exchange rate regime of 1945-1973 failed because of widely diverging national monetary and fiscal policies, differential rates of inflation, and various unexpected external sh

30、ocks. The U.S. dollar was the main reserve currency held by central banks was the key to the web of exchange rate values. The United States ran persistent and growing deficits in its balance of payments requiring a heavy outflow of dollars to finance the deficits. Eventually the heavy overhang of do

31、llars held by foreigners forced the United States to devalue the dollar because the U.S. was no longer able to guarantee conversion of dollars into its diminishing store of gold.7. The United Kingdom, Denmark, and Sweden have chosen not to adopt the euro but rather to maintain their individual curre

32、ncies. What are the motivations of each of these three countries that are also members of the EU?The United Kingdom chose not to adopt the euro because of the extensive use of the U.K. pound in international trade and financial transactions. London is still the world ' s most importanihfencial c

33、enter. The British are also very proud of their long tradition in financial matters when“ Britannia ruled the waves. " They are afraid thmonetary and financial matters may eventually migrate to Frankfurt where the European Central Bank is located. The British are also worried about continued co

34、ncentration of decision making in Brussels where the main European Union institutions are located.Denmark is also worried about losing its economic independence as a small country surrounded by big neighbors. Denmark" currency, the krone, is mostly tied to the euro anyway, so it does not suffer

35、 a misalignment with the primary currency unit of the surrounding economies. Sweden has strong economic ties to Denmark, Norway, and the United Kingdom, none of which adopted the euro so far. Sweden, like the others, are afraid of over concentration of power within European Union institutions.Despit

36、e popular fears and a certain amount of nationalism, all three countries have strong forces within that would like these countries to adopt the euro. This would usually require popular referendums, so you may see them adopt the euro in the future.8. The IMF classifies all exchange rate regimes into

37、eight specific categories that are summarized in this chapter. Under which exchange rate regime would you classify each of the following countries?(a) France: Exchange arrangements with no separate legal tender.(b) The United States: independent floating.(c) Japan: independent floating.(d) Thailand:

38、 managed floating with no pre-announced path for the exchange rate. Prior to the Asian Crisis of 1997 it was tied to the U.S. dollar.9. What are the advantages and disadvantages of fixed exchange rates? Fixed rates provide stability in international prices for the conduct of trade. Stable prices aid

39、 in the growth of international trade and lessen risks for all businesses.? Fixed exchange rates are inherently anti-inflationary, requiring the country to follow restrictive monetary and fiscal policies. This restrictiveness, however, can often be a burden to a country wishing to pursue policies that alleviate continuing internal economic problems, such as high unemployment or slow economic growth.? Fixed exchange rate regimes