Chapter 9 The International Monetary System
Exercises
1.Single-choice questions
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2.Essay questions
(1)
a.The Gold Standard, 1876-1913
b.The Interwar Years and World War II, 1914-1944
c.Bretton Woods and the International Monetary Fund, 1944
d.Eurocurrencies
e.Eurocurrency Interest Rates: LIBOR
f.Fixed Exchange Rates, 1945-1973
g.An Eclectic Currency Arrangement, 1973-Present
(2)
There was an explicit set of rules about the conduct of international monetary policies.
Each country was responsible for maintaining its exchange rate within 1 percent of the adopted par value by buying or selling foreign exchanges as necessary.
The US dollar was the only currency that was fully convertible to gold.The US dollar was pegged to gold at $35 per ounce.Each country established a par value for its currency in relation to the dollar.
(3)
a.Exchange arrangements with no separate legal tender
b.Currency board arrangements
c.Other conventional fixed peg arrangements
d.Pegged exchange rates within horizontal bands
e.Crawling pegs
f.Exchange rates within crawling pegs
g.Managed floating with no preannounced path for the exchange rate
h.Independent floating
(4)
a.Reasonable standard currency.
b.Governments around the world should take some measures to maintain the stability of exchange rate (so as to reduce risks and fluctuation).
c.Maintain balance of international payments as the main macroeconomic control objectives.
d.The efficient rescue mechanism to maintain the liquidity.
e.Effective international financial institutions.
(5)
Since an ounce of gold should be worth the same north or south of the English Channel, it should be €12 = £6.So our exchange rate implied by gold prices is €2 = £1, therefore buying€1,000 should cost £500:
€1,000×£1/€2 = £500.00
If the pound is undervalued at €1.80, we find that €1,000 costs £555.56:
€1,000×£1/€1.80 = £555.56
Savings in buying €1,000 by using gold and not posted exchange rates:
£555.56 - £500.00 = £55.56