Week 9

Question 1

What is the definition of money?

Answer 1

Money is any generally accepted medium of exchange that enables societies to trade goods without barter. It includes coins, banknotes, and digital currency.

Question 2

What did J.P Morgan do?

Answer 2

during the Panic of 1907 he used his wealth and influence to stabilize banks and keep the economy running

Question 3

What are the 3 main types of money?

Answer 3

Commodity money
Token money
Flat money

Question 4

What is commodity money?

Answer 4

gold and silver coins, and shells, grain or other items of agreed value

Question 5

What is token money?

Answer 5

coins or paper that can be exchanged for the face value of gold or silver
The “gold standard” is an example

Question 6

What is flat money?

Answer 6

money issued by a government that is not backed by gold or another commodity but rather by declaration of the issuing government

Question 7

How did the influx of silver from Potosi impact global trade?

Answer 7

The silver from Potosi boosted European economies, facilitated the transition to capitalism, and changed trade dynamics, especially with China and other parts of Asia.

Question 8

What historical event is linked to Potosi?

Answer 8

The conquest of Potosi led to an influx of silver and gold into Europe.

Question 9

How did Potosi influence global trade?

Answer 9

It changed trade dynamics between Europe and Asia due to the influx of Spanish silver.

Question 10

What is digital currency?

Answer 10

exchanged as information, rather than physical money

Question 11

Paper money

Answer 11

issued to represent value. From ancient China to modern societies

Question 12

When was the Bank of England formed, and what was its primary purpose?

Answer 12

The Bank of England was formed in 1694 to raise money for the British navy, issuing notes against government bonds.

Question 13

What is the economic significance of a stronger euro?

Answer 13

It reduces borrowing costs for European governments and businesses.

Question 14

What challenges does the eurozone face?

Answer 14

Limited bonds, structural weaknesses, and dependence on the dollar.

Question 15

When was the Federal Reserve created, and what are its functions?

Answer 15

The Federal Reserve was created in 1913 to centralize control of the U.S. monetary system, regulate banks, set interest rates, and act as a lender of last resort.

Question 16

What role do chartered banks play in Canada?

Answer 16

Chartered banks in Canada take deposits, make loans, and operate under charters issued by the federal government. They were initially privately controlled but became government-controlled in 1938.

Question 17

The Bank of England was formed what year?

Answer 17

1694

Question 18

What led to stronger banking regulations in Canada?

Answer 18

The Home Bank failure in 1923

Question 19

What event marked the beginning of the European push towards a shared currency?

Answer 19

Bretton Woods. Once that started getting shaky, the Hague Summit in 1969 considered new solutions for stability in Europe.

The Treaty of Rome in 1957 initiated talks on economic cooperation, which later led to the creation of the euro.

Question 20

The Federal Reserve Act was of what year?

Answer 20

1913

Question 21

Canada abandoned the gold standard officially in..

Answer 21

1931

Question 22

Bank of Canada established in….

Answer 22

1935

Question 23

Standardized currency established in …

Answer 23

1950

Question 24

When was the euro launched as a virtual currency?

Answer 24

1999

Question 25

How many countries use the euro?

Answer 25

It is now used by 19 out of 27 EU countries.

Question 26

What role does the U.S. dollar play globally?

Answer 26

The U.S. dollar dominates global trade and finance, being used in over 60% of foreign reserves and cross-border loans.

Question 27

What are the 4 main types of exchange rate systems?

Answer 27

Floating Exchange Rate Semi-Fixed Exchange Rate Fixed Exchange Rate Currency Board System

Question 28

What is a floating exchange rate?

Answer 28

Currency value determined by market forces.

Question 29

How is the Big Mac Index used to measure currency value?

Answer 29

The Big Mac Index compares the cost of a Big Mac in different countries to assess if a currency is undervalued or overvalued based on purchasing power parity (PPP)

Question 30

What challenges does the euro face in becoming a global currency?

Answer 30

Challenges include limited bonds, lack of full financial union, dependence on the dollar, and fragmented capital markets.

Question 31

How might digital currencies affect the euro’s global standing?

Answer 31

improve stability and reduce dependence on the dollar.

Question 32

What makes the U.S. dollar resilient despite global challenges?

Answer 32

The dollar’s deep integration into global trade, its backing by the U.S. economy, and international partnerships keep it dominant despite occasional fluctuations.

Question 33

What does it suggest if a currency is undervalued by the Big Mac Index?

Answer 33

The local currency may be priced lower than its US equivalent.

Question 34

What are semi-fixed exchange rates?

Answer 34

currency fluctuates within a narrow, fixed range and the central bank intervenes

Question 35

Which countries use semi-fixed exchange rates?

Answer 35

China, Jamaica, Croatia, Ethiopia

Question 36

Describe the floating exchange rate system.

Answer 36

Currency values fluctuate freely based on market conditions.

Question 37

What is a currency board system?

Answer 37

A fixed exchange rate system fully backed by foreign reserves or assets like gold

Question 38

What economic problems did Sri Lanka face?

Answer 38

High debt costs led to financial crises related to dollar borrowing.

Question 39

How has the dollar's strength impacted poor countries?

Answer 39

Many poor countries risk financial collapse due to high debt costs from dollar borrowing.

Question 40

What is the Delors Plan?

Answer 40

A proposal for a 3-stage process to implement Economic and Monetary Union in Europe.

Question 41

What is the Economic and Monetary Union (EMU)?

Answer 41

A scheme for integrating European economies and adopting a common currency.

Question 42

What did the European Monetary System (EMS) aim for?

Answer 42

Stabilization and cooperation of European currencies.

Question 43

What is Purchasing Power Parity (PPP)?

Answer 43

A theory that compares the relative value of currencies based on the cost of goods.

Question 44

What is a central bank's role in exchange rates?

Answer 44

To intervene when necessary to support or stabilize currency value.

Question 45

Who benefits from currency exchange programs initiated by the U.S. Federal Reserve?

Answer 45

Countries facing financial crises are supported through these programs.

Question 46

What historical context led to the establishment of the euro?

Answer 46

The end of the Bretton Woods system highlighted the need for stable European currencies.

Question 47

What is the significance of the Treaty of Rome in European finance?

Answer 47

It marked the beginning of financial cooperation in Europe.

Question 48

What can the Big Mac Index inform about tourism and travel?

Answer 48

It can indicate whether a destination's prices are aligned with global standards.

Question 49

What historical event caused the euro to lose its potential to rival the dollar in the 2000s?

Answer 49

The 2007 financial crisis

Question 50

What percentage of global foreign-exchange reserves is denominated in euros?

Answer 50

20%

Question 51

Why does issuing a currency desired by foreigners benefit governments?

Answer 51

It reduces borrowing costs.

Question 52

What two major developments have improved the euro's prospects internationally?

Answer 52

America's changing economic policies and Europe's response to COVID-19

Question 53

What potential future development might diversify global reserve currencies?

Answer 53

Creation of central bank digital currencies

Question 54

What is a fixed exchange rate

Answer 54

central bank fixes the currency value - currency is pegged to one or more currencies

Question 55

What are examples of countries that use a fixed exchange rate?

Answer 55

Hong Kong (pegged to USD), Denmark (pegged to Euro), Bulgaria.

Question 56

Why are countries with large foreign exchange reserves, like Russia, particularly vulnerable to U.S. financial sanctions?

Answer 56

They can only hold reserves in dollars or euros

Question 57

What alternative currency system is suggested as a way to secure independence from the U.S. dollar?

Answer 57

A system denominated in China's renminbi

Question 58

What recent financial instrument did an Indian cement producer use to pay for Russian coal imports?

Answer 58

Chinese currency (renminbi)

Question 59

According to the article, why does the dollar maintain its dominance in global trade?

Answer 59

It is abundant, cheap, and universally accepted

Question 60

Which countries are highlighted as experiencing severe economic distress due to the strengthening dollar and tightening credit conditions?

Answer 60

Sri Lanka and Argentina

Question 61

What financial strategy have emerging-market economies like Brazil and Thailand adopted to manage dependence on the dollar?

Answer 61

Borrowing in their own currencies

Question 62

What term did economist Daniela Gabor coin to describe the role of investment bankers and fund managers in maintaining the dollar-based financial network?

Answer 62

Wall Street consensus

Question 63

Which organization estimated that nearly 60% of low-income borrowers are at risk of debt distress

Answer 63

World Bank

Question 64

What did the Big Mac Index suggest about the Hong Kong dollar in July?

Answer 64

It was undervalued by almost 5.4%

Question 65

Which currency was the most undervalued in July 2014, according to the Big Mac Index?

Answer 65

Ukrainian hryvnia

Question 66

What happened to the Ukrainian hryvnia after it was identified as undervalued in July 2014?

Answer 66

further declined in value

Question 67

What factor is cited as making Big Mac prices higher in certain countries, despite undervaluation?

Answer 67

Local wages and operational costs

Question 68

What is one reason the article argues the Big Mac Index is still worth publishing despite its flaws?

Answer 68

It gives investors some entertainment and insight

Question 69

What resource was heavily mined in Potosí by the Spanish during colonial times?

Answer 69

silver

Question 70

Why was Potosí significant for the global economy in the colonial era?

Answer 70

It provided a vast supply of silver that shifted economies to a cash-based system.

Question 71

What modern resource is now being extracted in Potosí?

Answer 71

lithium

Question 72

What event led to the establishment of the U.S. Federal Reserve?

Answer 72

the financial crisis of 1907

Question 73

What global event led Canada to move off the gold standard?

Answer 73

The Great Depression

Question 74

What was the consequence of the Home Bank failure in Canada in 1923?

Answer 74

It prompted stricter regulation of Canadian banks

Question 75

What is the purpose of Canadian deposit insurance introduced in 1967?

Answer 75

To guarantee depositor money up to a specific limit in case of bank failure

Question 76

The Werner Report of 1970 included what 3 things

Answer 76

1. Stronger coordination of economic policies 2. Free movement of capital 3. Fixed exchange rates and common system of central banks

Question 77

The Currency Snake failed due to what

Answer 77

Oil crisis of 1973

Question 78

What is stage 1 of the Delors Plan

Answer 78

- countries started sharing ideas and working together - checked to see everyone was spending responsibly

Question 79

What is stage 2 of the Delors Plan

Answer 79

- countries set up new rules to make their money systems stronger - created a central group and made plans for switching to one currency (but did not use it yet)

Question 80

What is stage 3 of the Delors Plan

Answer 80

- the euro became the official currency for countries that were ready - european central bank (ECB) was in charge of managing the euro