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) (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.

Q3: When and where were the foundations of the post-World War II international monetary system laid down? (p. 235) (b) In 1944, in Bretton Woods.

Q4: What was the fundamental principle of the post-World War II international monetary system? (p. 235) (c) To fix exchange rates in order to avoid “beggar-thy-neighbour” policies.

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

Q6: In which year was the fixed exchange rate regime abandoned? (p. 236) (a) in 1971

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

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

Q9: As a consequence of the inflationary pressure in America, … (p. 237) (d) international confidence in the system deteriorated substantially.

Q10: What are SDRs? (p. 237) (c) Special Drawing Rights

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)

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

(f) Following a leader.

(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.

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

(e) Fixed exchange rates.

(f) Reliable reserve credit.

(h) Pegging national currencies to the dollar.

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

topic 8.

The international monetary regime

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