02 - Market Foundation 2 - Regimes

Question 1

When was Bretton Woods Conference?

Answer 1

July 1944

Question 2

How many nations agreed to Bretton Woods?

Answer 2

44

Question 3

What did Brettons Woods create?

Answer 3

IMF and IBRD

Question 4

IMF

Answer 4

International monetary fund. Intervene when imbalances arose

Question 5

IBRD

Answer 5

International bank for Reconstruction & Development. Financial assistance for reconstruction of war-ravaged nations and the economic development of less developed countries

Question 6

What was the purpose of Bretton wood

Answer 6

Free trade promotion international prosperity and peace.

Question 7

What is managed floating

Answer 7

Gov or central bank gradually adjusting FX rate to manipulate currency value in relation to others to stop volatility caused by economic shock

Question 8

What is dirty floating

Answer 8

Manipulation to the disadvantage of other currencies

Question 9

Advantages of floating regime (4)

Answer 9

Automatic BOP adjustments
Flexibility to allow for dirty/managed floating
Monetary policy focus
No long term commitment

Question 10

Disadvantages of floating regime (2)

Answer 10

Potential volatility for importers/exporters

Flexibility for dirty/managed floating

Question 11

What’s happens in fixed regime when upper bounds are reached (weaker). USD/HKD

Answer 11

Must sell USD and buy HKD to increase its value

Question 12

What happens in fixed regime when lower bounds are hit (stronger) USD/HKD

Answer 12

Sell HKD and buy USD (decrease HKD value)

Question 13

What happens to imports and exports when FX rate has a sharp increase?

Answer 13

Imports: for net importer, imports cheaper, may cause deficit to get out of control
Exports: for net surplus, exports expensive, surplus will go lower causing deflation in prices of exported goods

Question 14

What happens to imports and exports when FX rate has a sharp decrease?

Answer 14

Imports: imports expensive, may cause growth to slow
Exports: exports cheaper, high levels of growth, cause inflation if exported goods

Question 15

What is a trade deficit

Answer 15

Imports a greater value than it exports

Question 16

What is a trade surplus

Answer 16

Exports a greater value than it imports

Question 17

Top 3 countries with trade deficit

Answer 17

1. USA
2. UK
3. India

Question 18

Top 3 countries for trade surplus

Answer 18

1. Germany
2. Japan
3. China

Question 19

What’s are the levers a government or central bank can use to manipulate exchange rate (3)

Answer 19

1. Buy/sell foreign and domestic currency
2. Interest rates
3. Money supply (QE)