Chapter 3

Question 1

Under the gold standard, all national governments promised to follow the “rules of the game”. What did this mean

Question 2

What did it mean under the gold standard to defend a fixed exchange rate and what did this imply about a country’s money supply

Question 3

What was the foundation of the Bretton Woods international monetary system, and why did it eventually fail

Question 4

what does a floating rate of exchange mean? what is the role of the government

Answer 4

government does not set the currency’s value or intervene in the marketplace, allowing the supply and demand of the market for its currency to determine the exchange value.

Question 5

what are the advantages and disadvantages of fixed exchange rates

Question 6

How does a crawling peg fundamentally differ from a pegged exchange rate

Answer 6

crawling peg: small adjustments to the fixed rate of exchange
pegged exchange rate: no changes/ adjustments made

Question 7

explain what is meant by the term impossible trinity and why it is in fact “impossible”

Question 8

difference between dollarization and currency board

Answer 8

dollarization: country abolishes its own currency and uses a foreign currency
currency board: country issues its own currency

Question 9

what are special drawing rights

Question 10

what are the attributes of the ideal currency

Question 11

main outcomes of dollarization, currency board, free-floating regimes from the perspectives of emerging market nations

Question 12

eras of the evolution of capital mobility

Answer 12

1. classical gold standard
2. inter-war years
3. fixed exchange rates
4. floating exchange rates
5. emerging era