Chapter 2: The International Monetary System

Question 1

The _____________is part of institutional framework that Binds national economies such a system permits producers to specialized in those goods for which they have a comparative advantage, and serves to seek profitable investment opportunities on a global basis.

Answer 1

international monetary system

Question 2

The international monetary system refers to the operating system of the financial environment, which consists of _________,_____________, and _____________.

Answer 2

• financial institutions,
• multinational corporations,
• investors.

Question 3

The ____________ provides the institutional framework for determining the rules and procedures for international payments, determination of exchange rates, and movement of capital.

Answer 3

international monetary system

Question 4

The major stages of the evolution of the international monetary system can
be categorized into the following stages.

Answer 4

1. The era of bimetallism
2. Gold standard
3. Gold exchange standard
4. Flexible exchange rate regime

Question 5

Before 1870, the international monetary system consisted of bimetallism, where both gold and silver coins were used as the international modes of payment.

Answer 5

The era of bimetallism

Question 6

prevailed from 1875 to 1914. In this system, gold alone is assured of unrestricted coinage

Answer 6

Gold standard

Question 7

During this period the United States replaced Britain as the dominant financial power of the world,

Answer 7

World War I and World War II (1915-1944).

Question 8

During the intermittent period, many countries followed a policy of sterlization of gold by matching inflows and outflows of gold with changes in domestic money and credit

Answer 8

1919

Question 9

The _________________ was established after World War II and was in existence during the period 1945-1972.

Answer 9

Bretton Woods System

Question 10

In ____, representatives of 44 nations met at Bretton Woods, New Hampshire, and designed a new postwar international monetary system.

Answer 10

1944

Question 11

(IET)

Answer 11

Interest Equalization Tax

Question 12

(SDRs)

Answer 12

special drawing rights

Question 13

The international monetary fund created a new reserve asset called ___________ to ease the pressure on the dollar, which was the central reserve currency.

Answer 13

special drawing rights (SDRs)

Question 14

The US government took several dollar defense measures, including the imposition of the ______________ on US purchases of foreign stock to prevent the outflow of dollars.

Answer 14

Interest Equalization Tax (IET)

Question 15

In _____, the SDR were restructured to constitute only five major currencies: the US dollar, German mark, Japanese yen, British pound, and French frane.

Answer 15

1981

Question 16

The________were also being used as a denomination currency for international transactions. But the dollar-based gold

Answer 16

SDR

Question 17

In 1971_____________ signed by the hop t Ten major countries made changes to the gold exchange standard.

Answer 17

the Smithsonian Agreement

Question 18

European and Japanese currencies became free-floating currencies in 1973.

Answer 18

Flexible exchange rate regime

Question 19

The flexible exchange rate regime was formally ratified in _____by IMF members through the _________. The agreement stipulated that central banks of respective countries could intervene in the exchange markets to guard against unwarranted fluctuations.

Answer 19

1976, Jamaica Agreement

Question 20

In ____, the Plaza Accord envisaged the depreciation of the dollar against most major currencies to solve US trade deficit problems.

Answer 20

1985