Exercise 1. A) Multiple choice questions (only one correct answer exists).

A) Multiple choice questions (only one correct answer exists).

Q1: What is “OPEC”? (p. 234)

(a) Organisation of Poor European Countries

(b) Office for Pre-paid Exports and Commodities

(c) Office for Petroleum and Export in Canada

(d) Organisation of Petroleum Exporting Countries

Q2: What is the ultimate objective of an international monetary system? (p. 234)

(a) To facilitate transactions in the real economy.

(b) To provide capital that is needed for economic activities and development.

(c) To provide goods that is needed for economic activities and destruction.

(d) To facilitate the trade of money in the real economy.

Q3: When and where were the foundations of the post-World War II international monetary system laid down? (p. 235)

(a) In 1958, in Rome.

(b) In 1944, in Bretton Woods.

(c) In 1948, in London.

(d) In 1958, in New York.

Q4: What was the fundamental principle of the post-World War II international monetary system? (p. 235)

(a) To fix exchange rates in order to create target zones.

(b) To let exchange rates fluctuate in order to create a stable new economic system, which serves the interest of both investors and savers.

(c) To fix exchange rates in order to avoid “beggar-thy-neighbour” policies.

(d) To let exchange rates fluctuate in order to effectively support international trade across the globe.

Q5: Which of the following international institutions was responsible to provide the basic framework for the post-World War II international monetary system? (p. 235)

(a) IMF

(b) ITO

(c)World Bank

(d) IBRD

Q6: In which year was the fixed exchange rate regime abandoned? (p. 236)

(a) in 1971

(b) in 1961

(c) in 1981

(d) in 1981

Q7: Which of the following macroeconomic phenomena caused the USA to abandon the monetary regime of the post-World War II era? (p. 236)

(a) Increase in unemployment due to the oil shock

(b) Increase in the interest rate due to the restrictive monetary policy of the Fed

(c) Increase in inflation due to the Vietnam War

(d) Increase in oil prices

Q8: The American currency, the dollar, played the role of both … (p. 237)

(a) a transaction and a reserve currency.

(b) a transmission and a recreation currency.

(c) a liquidity and a confidence currency.

(d) a transaction and a remark currency.

Q9: As a consequence of the inflationary pressure in America, … (p. 237)

(a) international reserves were depleted substantially, thereby causing a serious multinational inflationary pressure.

(b) the dollar appreciated severely.

(c) the demand for the dollar increased dramatically.

(d) international confidence in the system deteriorated substantially.

Q10: What are SDRs? (p. 237)

(a) Social Dilemmas and Rights

(b) Socialist Dictatorship and Rebellion

(c) Special Drawing Rights

(d) Special Dollar Reserves

B) In the following, you will find several statements. Decide whether these statements are correct or not.

Q1: The decades following World War II can be best described as ones in which monetary and financial affairs were isolated from one another. C

Q2: The ultimate purpose of an international financial system is to provide capital that is required for economic activities and development across the world. C

Q3: In the 1930s, the world was dominated by so-called “beggar-thy-neighbour” policies. C

Q4: The IMF originally intended to provide monetary reserves for international institutions in trouble, so that these institutions could maintain fixed parities. I

Q5: The post-World War II international monetary system proved unsuccessful. I

Q6: The post-World War II international monetary system was originally designed to provide policy autonomy for national authorities and also to create international monetary stability. C

Q7: The post-World War II international monetary system was basically a dollar-based system. C

Q8: By the 1960s, the American balance of payments shifted from a deficit to a surplus, therefore there was a revaluation pressure on the American currency. I

Q9: SDRs played the role of reserve assets and were created by the World Bank. I

Q10: The fixed exchange rate regime of the post-World War II era was changed for a flexible regime from the early 1970s onwards. C

C) As it has been mentioned by the textbook, there are three ways of stabilising a monetary system. Which are these? Note: only three out of the eight possible answers are correct. (p. 235)

(a) Devaluating national currencies.

(b) Introducing a common currency, which, however, does not replace national currencies.

(c) Communicating the proper levels of exchange rates.

(d) Tying each currency to a non-monetary asset, such as gold for instance

(e) Establishing a new international monetary system.

(f) Following a leader.

(g) Increasing and/or decreasing interest rates.

(h) Coordinating national monetary policies.

D) The post-World War II international monetary system was based on several principles. Which ones were these? (p. 236) More than one correct answer is possible.

(a) Flexibility in exchange rates.

(b) The dollar price of one ounce of gold was fixed at $35.

(c) Convertibility of all nations’ currencies in the world.

(d) Export subsidies.

(e) Fixed exchange rates.

(f) Reliable reserve credit.

(g) Credit for countries in trouble without limit.

(h) Pegging national currencies to the dollar.

(i) Possibility for adjustment.

(j) The creation of the GATT.

(k) The IMF was supposed to manage the system.

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