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InternationalmFinancialmManagement,m8em(Eun
)mChapterm2 InternationalmMonetarymSystem
1) Theminternationalmmonetarymsystemmcanmbemdefinedmasmtheminstitutionalmframeworkmwithinmwhich
A) internationalmpaymentsmaremmade.
B) movementmofmcapitalmismaccommodated.
C) exchangemratesmamongmcurrenciesmaremdetermined.
D) allmofmthemoptions
2) Corporationsmtodaymaremoperatingminmanmenvironmentminmwhichmexchangemratemchangesmmay
madverselymaffectmtheirmcompetitivempositionsminmthemmarketplace.mThismsituation,minmturn,mmake
smitmnecessarymformmanymfirmsmto
A) carefullymmanagemtheirmexchangemriskmexposure.
B) carefullymmeasuremtheirmexchangemriskmexposure.
C) carefullymmanagemandmmeasuremtheirmexchangemriskmexposure.
D) nonemofmthemoptions
3) Theminternationalmmonetarymsystemmwentmthroughmseveralmdistinctmstagesmofmevolution.mThe
semstagesmaremsummarized,minmalphabeticmorder,masmfollows:
(i) Bimetallism
(ii) BrettonmWoodsmsystem
(iii) Classicalmgoldmstandard
(iv) Flexiblemexchangemratemregime
(v) Interwarmperiod
Themchronologicalmordermthatmtheymactuallymoccurredmis:
A) (iii),m(i),m(iv),m(ii),mandm(v)
B) (i),m(iii),m(v),m(ii),mandm(iv)
C) (vi),m(i),m(iii),m(ii),mandm(v)
D) (v),m(ii),m(i),m(iii),mandm(iv)
4) InmthemUnitedmStates,mbimetallismmwasmadoptedmbymthemCoinagemActmofm1792mandmremainedmamle
galmstandardmuntilm1873,
A) whenmCongressmdroppedmthemsilvermdollarmfrommthemlistmofmcoinsmtombemminted.
B) whenmCongressmdroppedmthemtwenty-dollarmgoldmpiecemfrommthemlistmofmcoinsmtombemminted.
C) whenmgoldmfrommthemCaliforniamgoldmrushmdrovemsilvermoutmofmcirculation.
D) whenmgoldmfrommthemCaliforniamgoldmrushmdrovemgoldmoutmofmcirculation.
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5) Themmonetarymsystemmofmbimetallismmismunstable.mDuemtomthemfluctuationmofmthemcommercialmval
uemofmthemmetals,
A) themmetalmwithmamcommercialmvaluemlowermthanmthemcurrencymvaluemtendsmtombemusedmasmmetalm
andmismwithdrawnmfrommcirculationmasmmoneym(Gresham'smLaw).
B) themmetalmwithmamcommercialmvaluemhighermthanmthemcurrencymvaluemtendsmtombemusedmasmmo
neym(Gresham'smLaw).
C) themmetalmwithmamcommercialmvaluemhighermthanmthemcurrencymvaluemtendsmtombemusedmasmmetalm
andmismwithdrawnmfrommcirculationmasmmoneym(Gresham'smLaw).
D) nonemofmthemoptions
6) Inmthem1850smthemFrenchmfrancmwasmvaluedmbymbothmgoldmandmsilver,mundermthemofficialmFrenchmr
atiomwhichmequatedmamgoldmfrancmtomamsilvermfrancm15½mtimesmasmheavy.mAtmthemsamemtime,mthemgo
ldmfrommnewlymdiscoveredmminesminmCaliforniampouredmintomthemmarket,mdepressingmthemvaluemofm
gold.mAsmamresult,
A) themfrancmeffectivelymbecamemamsilvermcurrency.
B) themfrancmeffectivelymbecamemamgoldmcurrency.
C) silvermbecamemovervaluedmundermthemFrenchmofficialmratio.
D) themfrancmeffectivelymbecamemamsilvermcurrencymandmsilvermbecamemovervaluedmundermthemFren
chmofficialmratio.
7) Gresham'smLawmstatesmthat
A) badmmoneymdrivesmgoodmmoneymoutmofmcirculation.
B) goodmmoneymdrivesmbadmmoneymoutmofmcirculation.
C) ifmamcountrymbasesmitsmcurrencymonmbothmgoldmandmsilver,matmanmofficialmexchangemrate,mitmwillmbem
themmoremvaluablemofmthemtwommetalsmthatmcirculate.
D) nonemofmthemoptions.
8) Supposemthatmthempoundmismpeggedmtomgoldmatm£20mpermouncemandmthemdollarmismpeggedmtomgoldmatm
$35mpermounce.mThismimpliesmanmexchangemratemofm$1.75mpermpound.mIfmthemcurrentmmarketmexchang
emratemis
$1.80mpermpound,mhowmwouldmyoumtakemadvantagemofmthismsituation?mHint:massumemthatmyoumhave
$350mavailablemforminvestment.
A) Startmwithm$350.mBuym10mouncesmofmgoldmwithmdollarsmatm$35mpermounce.mConvertmthemgoldmtom£
200matm£20mpermounce.mExchangemthem£200mformdollarsmatmthemcurrentmratemofm$1.80mpermpoundmtomg
etm$360.
B) Startmwithm$350.mExchangemthemdollarsmformpoundsmatmthemcurrentmratemofm$1.80mpermpound.mB
uymgoldmwithmpoundsmatm£20mpermounce.mConvertmthemgoldmtomdollarsmatm$35mpermounce.
C) bothmofmthemoptions
D) nonemofmthemoptions
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9) Supposemthatmthempoundmismpeggedmtomgoldmatm£20mpermouncemandmthemdollarmismpeggedmtomgoldmatm
$35mpermounce.mThismimpliesmanmexchangemratemofm$1.75mpermpound.mIfmthemcurrentmmarketmexchang
emratemis
$1.60mpermpound,mhowmwouldmyoumtakemadvantagemofmthismsituation?mHint:massumemthatmyoumhave
$350mavailablemforminvestment.
A) Startmwithm$350.mBuym10mouncesmofmgoldmwithmdollarsmatm$35mpermounce.mConvertmthemgoldmtom£
200matm£20mpermounce.mExchangemthem£200mformdollarsmatmthemcurrentmratemofm$1.80mpermpoundmtomg
etm$360.
B) Startmwithm$350.mExchangemthemdollarsmformpoundsmatmthemcurrentmratemofm$1.60mpermpound.mB
uymgoldmwithmpoundsmatm£20mpermounce.mConvertmthemgoldmtomdollarsmatm$35mpermounce.
C) bothmofmthemoptions
D) nonemofmthemoptions
10) SupposemthatmthemUnitedmStatesmismonmambimetallicmstandardmatm$30mtomonemouncemofmgoldmand
m$2mformonemouncemofmsilver.m Ifmnewmsilvermminesmopenmandmfloodmthemmarketmwithmsilver,
A) onlymthemsilvermcurrencymwillmcirculate.
B) onlymthemgoldmcurrencymwillmcirculate.
C) nomchangemwillmtakemplacemsincemcitizensmcouldmexchangemtheirmgoldmcurrencymformsilvermcurren
cymatmanymtime.
D) nonemofmthemoptions.
11) Supposemthatmyourmcountrymofficiallymdefinesmgoldmasmtenmtimesmmoremvaluablemthanmsilverm(i.
e.,mthemcentralmbankmstandsmreadymtomredeemmthemcurrencyminmgoldmandmsilvermandmthemofficialmpric
emofmgoldmismtenmtimesmthemofficialmpricemofmsilver).mIfmthemmarketmpricemofmgoldmismonlymeightmtimesm
asmmuchmasmsilver,
A) themcentralmbankmcouldmgombrokemifmenoughmarbitrageursmattemptmtomtakemadvantagemofmthemprici
ngmdisparity.
B) themcentralmbankmwillmmakemmoneymsincemtheymaremoverpricingmgold.
C) themcentralmbankmcouldmgombrokemifmenoughmarbitrageursmattemptmtomtakemadvantagemofmthemprici
ngmdisparity,mbutmwillmmoremlikelymmakemmoneymsincemtheymaremoverpricingmgold
D) nonemofmthemoptions.
12) Priormtomthem1870s,mbothmgoldmandmsilvermweremusedmasminternationalmmeansmofmpaymentmandmt
hemexchangemratesmamongmcurrenciesmweremdeterminedmbymeithermtheirmgoldmormsilvermcontents.mSu
pposemthatmthemdollarmwasmpeggedmtomgoldmatm$30mpermounce,mthemFrenchmfrancmismpeggedmtomgoldmat
m90mfrancsmpermouncemandmtomsilvermatm9mfrancsmpermouncemofmsilver,mandmthemGermanmmarkmpegge
dmtomsilvermatm1mmarkmpermouncemofmsilver.mWhatmwouldmthemexchangemratembetweenmthemU.S.mdollar
mandmGermanmmarkmbemundermthismsystem?
A) 1mGermanmmarkm=m$2
B) 1mGermanmmarkm=m$0.50
C) 1mGermanmmarkm=m$3
D) 1mGermanmmarkm=m$1
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13) Priormtomthem1870s,mbothmgoldmandmsilvermweremusedmasminternationalmmeansmofmpaymentmandmt
hemexchangemratesmamongmcurrenciesmweremdeterminedmbymeithermtheirmgoldmormsilvermcontents.mSu
pposemthatmthemdollarmwasmpeggedmtomgoldmatm$30mpermounce,mthemFrenchmfrancmismpeggedmtomgoldmat
m90mfrancsmpermouncemandmtomsilvermatm6mfrancsmpermouncemofmsilver,mandmthemGermanmmarkmpegge
dmtomsilvermatm1mmarkmpermouncemofmsilver.mWhatmwouldmthemexchangemratembetweenmthemU.S.mdollar
mandmGermanmmarkmbemundermthismsystem?
A) 1mGermanmmarkm=m$2
B) 1mGermanmmarkm=m$0.50
C) 1mGermanmmarkm=m$3
D) 1mGermanmmarkm=m$1
14) SupposemthatmcountrymAmandmcountrymBmarembothmonmambimetallicmstandard.mInmcountrymAmthemra
tiomism15mtomonem(i.e.,manmouncemofmgoldmismworthm15mtimesmasmmuchmasmanmouncemofmsilverminmthatmcu
rrency),mwhileminmcountrymBmthemratiomismtenmtomone.mIfmthemfreemflowmofmcapitalmismallowedmbetween
mcountriesmAmandmB,mismthismamsustainablemframework?
A) Yes
B) No
C) Theremismnotmenoughminformationmtommakemanminformedmdetermination.
15) Supposemthatmbothmgoldmandmsilvermaremusedmasminternationalmmeansmofmpaymentmandmthemexchan
gemratesmamongmcurrenciesmaremdeterminedmbymeithermtheirmgoldmormsilvermcontents.mSupposemthatmt
hemdollarmwasmpeggedmtomgoldmatm$20mpermounce,mthemJapanesemyenmismpeggedmtomgoldmatm120,000my
enmpermouncemandmtomsilvermatm8,000myenmpermouncemofmsilver,mandmthemAustralianmdollarmismpeggedm
tomsilvermat
$5mpermouncemofmsilver.mWhatmwouldmthemexchangemratembetweenmthemU.S.mdollarmandmAustralianmdolla
rmbemundermthismsystem?
A) $1mU.S.m=m$1mAustralian
B) $1mU.S.m=m$2mAustralian
C) $1mU.S.m=m$3.75mAustralian
D) nonemofmthemoptions
16) ThemUnitedmStatesmadoptedmthemgoldmstandardmin
A) 1776.
B) 1879.
C) 1864.
D) 1973.
17) Themgoldmstandardmstillmhasmardentmsupportersmwhombelievemthatmitmprovides
A) anmeffectivemhedgemagainstmpriceminflation.
B) fixedmexchangemratesmbetweenmallmcurrencies.
C) monetarympolicymautonomy.
D) allmofmthemoptions
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