MODULE 1

Question 1

In July 1944, representatives of 44 nations gathered at Bretton Woods, New Hampshire, to discuss and design the post-war international monetary system. After lengthy discussions and bargains, representatives succeeded in drafting and signing the Articles of Agreement of the International Monetary Fund (IMF), which constitutes the core of the __________

Answer 1

Bretton Woods System: 1945–1972

Question 2

Is a monetary system that allows the exchange rate to be determined by supply and demand.

Answer 2

The Flexible Exchange Rate Regime: 1973– Present

Question 3

is a monetary arrangement based on an explicit legislative commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate, combined with restrictions on the issuing authority to ensure the fulfillment of its legal obligation. This implies that domestic currency is usually fully backed by foreign assets, eliminating traditional central bank functions such as monetary control and lender of last resort, and leaving little room for discretionary monetary policy.

Answer 3

Currency board

Question 4

in economics is a monetary principle stating that when there are two forms of commodity money in circulation, which are accepted by law as legal tender and the same face values, the more valuable one – ‘good money’ – will be hoarded and will disappear from circulation, while the less valuable one – ‘bad money’ – will be passed on (used for transactions).

Answer 4

Gresham’s Law

Question 5

Evolution of International Monetary System?

Answer 5

1. BIMETALLISM BEFORE 1875
2. CLASSICAL GOLD STANDARD - 1875-1914
3. INTERWAR PERIOD - 1915-1944
4. BRETTON WOODS SYSTEM - 1945-1972
5. FLEXIBLE EXCHANGE CURRENCY RATE - 1973-PRESENT

Question 6

Sister institution of IMF that was chiefly responsible for financing individual development projects.

Answer 6

International Bank for Reconstruction and Development (IBRD), better known as the World Bank,

Question 7

is largely market determined, without an ascertainable or predictable path for the rate. In particular, an exchange rate that satisfies the statistical criteria for a stabilized or a crawl-like arrangement will be classified as such unless it is clear that the stability of the exchange rate is not the result of official actions

Answer 7

Floating

Question 8

Under the gold standard, international imbalances of payment will also be corrected ____

Answer 8

automatically

Question 9

is based on IMF member countries’ actual, de facto arrangements, as identified by IMF staff, which can be different from the officially announced, de jure arrangements. The system classifies exchange rate arrangements primarily based on the degree to which the exchange rate is determined by the market rather than by official government action, with market-determined rates generally being more flexible.

Answer 9

The Current Exchange Rate Arrangements (the classification system)

Question 10

is a well-known term in today’s world and it is also known as ___ It means financial management in an international business environment. It is different because of the different currency of different countries, dissimilar political situations, imperfect markets, diversified opportunity sets.

Answer 10

International Financial Management

Question 11

entails a spot market exchange rate that remains within a margin of 2 percent for 6 months or more (with the exception of a specified number of outliers or step adjustments) and is not floating.

Answer 11

Stabilized arrangement

Question 12

is a model developed by David Hume to explain how trade imbalances can be automatically adjusted under the gold standard. In its original form, the model assumes that only gold coins are circulated and the role of central bank is negligible.

Answer 12

Price-Specie-Flow Mechanism

Question 13

Under the gold standard, the exchange rate between any two currencies will be determined by their _______

Answer 13

gold content

Question 14

can be defined as the institutional framework within which international payments are made, movements of capital are accommodated, and exchange rates among currencies are determined. It is a complex whole of agreements, rules, institutions, mechanisms, and policies regarding exchange rates, international payments, and the flow of capital.

Answer 14

International Monetary System

Question 15

4 ELEMENTS OF INTERNATIONAL MONETARY SYSTEM

Answer 15

1. exchange arrangements and exchange rates
2. international payments and transfers relating to current international transfers
3. international capital movement
4. international reserves.

Question 16

Under the gold standard, misalignment of the exchange rate will be automatically corrected by_____

Answer 16

cross-border flows of gold

Question 17

involves the confirmation of the country authorities’ de jure exchange rate arrangement. The currency is adjusted in small
amounts at a fixed rate or in response to changes in selected quantitative indicators, such as past inflation differentials vis-à-vis major trading partners or differentials between the inflation target and expected inflation in major trading partners.

Answer 17

Crawling peg

Question 18

World War I ended the classical gold standard in August 1914, as major countries such as Great Britain, France, Germany, and Russia suspended redemption of banknotes in gold and imposed embargoes on gold exports. After the war, many countries, especially Germany, Austria, Hungary, Poland, and Russia, suffered hyperinflation.

Answer 18

Interwar Period: 1915 – 1944

Question 19

double standard in that free coinage was maintained for both gold and silver.

Answer 19

Bimetallism: Before 1875

Question 20

The exchange rate must remain within a narrow margin of 2 percent relative to a statistically identified trend for six months or more (with the exception of a specified number of outliers), and the exchange rate arrangement cannot be considered as floating.

Answer 20

Crawl-like arrangement

Question 21

IMF currently classifies exchange rate arrangements into 10 separate regimes

Answer 21

1. No separate legal tender
2. currency board
3. conventional peg
4. stabilized management
5. crawling peg
6. crawl-like arrangement
7. pegged exchange rate within horizontal bands
8. other managed arrangement
9. floating
10. free floating

Question 22

if intervention occurs only exceptionally and aims to address disorderly market conditions and if the authorities have provided information or data confirming that intervention has been limited to at most three instances in the previous six months, each lasting no more than three business days.

Answer 22

Free floating

Question 23

The value of the currency is maintained within certain margins of fluctuation of at least positive-negative 1 percent around a fixed central rate, or the margin between the maximum and minimum value of the exchange rate exceeds 2 percent.

Answer 23

Pegged exchange rate within horizontal bands

Question 24

The currency of another country circulates as the sole legal tender. Adopting such an arrangement implies complete surrender of the monetary authorities’ control over the domestic monetary policy.

Answer 24

No separate legal tender

Question 25

For this category the country formally (de jure) pegs its currency at a fixed rate to another currency or a basket of currencies, where the basket is formed, for example, from the currencies of major trading or financial partners and weights reflect the geographic distribution of trade, services, or capital flows.

Answer 25

Conventional peg

Question 26

a monetary system where a country’s currency or paper money has a value directly linked to gold. Countries agreed to convert paper money to a fixed amount of gold.

Answer 26

Classical Gold Standard 1875 – 1914

Question 27

This category is a residual, and is used when the exchange rate arrangement does not meet the criteria for any of the other categories. Arrangements characterized by frequent shifts in policies may fall into this category.

Answer 27

Other managed arrangement