Describe the Bretton Woods currency system? What will be an ideal response? ANSWER Answer: In the Bretton Woods System, in place between 1944 and 1973, the participating countries agreed to an exchange rate regime that linked their exchange rates to the dollar. They could fluctuate in a 1% band around a fixed parity. […]
In fixed exchange rate systems, the tendency is for the domestic currency to be ________. A) undervalued B) at parity C) overvalued D) unchanged relative to the rest of the world’s currencies ANSWER Answer: C
If you were attempting to characterize the currency in a floating rate system, the most important factor to analyze is the ________ of the future exchange rate changes. A) conditional distribution B) histogram C) sample mean D) sample variance ANSWER Answer: A
In which one of the following systems would it be least difficult to quantify the currency risk? A) floating exchange system B) target zone system C) pegged exchange rate system D) currency board ANSWER Answer: A
What are the savings of marginal bad debts under the proposed plan? (See Table 14.7) A) $500,000 B) $50,000 C) $10,000 D) $5,000 ANSWER B
What is the cost of the marginal cash discount? (See Table 14.7) A) $768,750 B) $300,000 C) $307,500 D) $230,625 ANSWER D
What is the net result of increasing the cash discount? (See Table 14.7) A) +$33,750 B) -$33,750 C) +$128,750 D) -$58,750 ANSWER C
When countries have pegged exchange rate systems, they often set up ________ to improve the credibility of the system in the eyes of the global traders. A) target zone systems B) futures markets for currencies C) currency board systems D) sterilized interventions ANSWER Answer: C
Which one of the following systems would most often be used by a developing economy? A) target zone B) currency board C) floating exchange rate D) crawling peg ANSWER Answer: D
What is the most likely outcome if a central bank suddenly prints a large amount of new money? A) no change in the inflation rate B) higher inflation C) recession D) prosperity ANSWER Answer: B
