CH 10 - International Monetary System

Question 1

International monetary system

Answer 1

Institutional arrangements to control exchange rates

Question 2

4 major trading currencies

Answer 2

• US dollar
• European euro
• Japanese yen
• British pound

Question 3

Gold standard

Answer 3

Pegging currencies to gold & guaranteeing convertibility.

Question 4

Role of the IMF

Answer 4

Discipline: maintain fixed exchange rates

Flexibility: lending facilities & adjustable parities

Question 5

Role of the World Bank / International Bank for Reconstruction and Development (IBRD)

Answer 5

• Offer low interest loans(1% x year) to the poorest countries with 50 years to repay.

Question 6

The Jamaica Agreement

Answer 6

• floating rates are acceptable
• gold was left as a reserve asset
• Increase in IMF quotas

Question 7

Fixed vs floating exchange rates

Answer 7

Fixed:
- less speculation
- less uncertainty

Floating:
- autonomy
- automatic trade balance adjustments

Question 8

Exchange rates around the world

Answer 8

• 21% of IMF members have floating currency
• 23% have managed float
• 43% has inflexible systems like pegs

Question 9

Currency crisis

Answer 9

A speculative attack on the exchange value of a currency results in a sharp depreciation

Question 10

Banking crisis

Answer 10

Loss of confidence in the banking system

Question 11

Foreign Debt Crisis

Answer 11

A country cannot service its foreign debt obligations whether its private or gov. debt

Question 12

Third-World Debt Crisis

Answer 12

• Russia 1992
  -Mexico 1995
• Asia 1997