Define
Define International Monetary System
The institutional arrangements that govern exchange rates.
The __________ _________ ______ was established to maintain order in the international monetary system.
International Monetary Fund (IMF)
What is the system by which the value of a currency was defined in terms of gold (1930s).
The Gold Standard
List two of the three main purposes for the creation of the Bretton Woods Agreement (1944).
1. Establish that the U.S. dollar was the only currency to be convertible to gold.
2. Establish that devaluations could not be used for competitive purposes.
3. Establish that a country could not devalue its currency by more than 10% without IMF approval.
With a _______ _______ ______ system, countries fix their currencies against each other at a mutually agreed upon value.
fixed exchange rate
Define Pegged Exchange Rate:
Rate in which the currency of one country is tied to a usually stronger currency, such as the euro, US dollar or pound sterling.
The _______ ______ was created to promote general economic development by providing loans for capital projects in various countries.
World Bank
The ______ ______ ______ is the amount of currency needed to purchase one ounce of gold.
Gold Par Value
Name 2 of the five main events resulting in exchange rates becoming more volatile and less predictable since the 1970s.
1. The oil crisis in 1971
2. The decrease in value of the U.S. value after inflation jumped between 1977-1978.
3. The oil crisis of 1979.
4. The rise in the dollar between 1980-1985.
5. The partial collapse of the European monetary system in 1992.
Firms should focus their efforts on encouraging their government to __________ international trade and investment.
Promote
(or similar synonym)
Define Monetary Policy Autonomy:
The removal of the obligation to maintain exchange rate parity to restore monetary control to a government.
DOUBLE JEOPARDY (Correct Answer = 600pts)
A country with a ________ _______ commits to converting its domestic currency on demand into another currency at a fixed exchange rate.
Currency Board
The International Monetary Fund was established though which postwar economic agreement (1944)?
Bretton Woods Agreement
Name two of the main three outcomes of the Jamaica Meeting:
1. The creation of the "Jamaican Agreement" with the IMF.
2. Floating rates were declared acceptable.
3. Gold was abandoned as a reserve asset.
4. Total International Monetary Fund quotas were increased to $41 billion.
A ________ _______ occurs when a speculative attack on the exchange value of a currency results in a sharp depreciation in the value of the currency.
currency crisis
Define Floating Exchange Rate Regime:
(Ex: Jamaica in 1976)
A regime where the currency price of a nation is based on supply and demand relative to other currencies.
A ______ ______ is en exchange rate where a country's central bank occasionally intervenes to change the direction or the pace of change of a country's currency value.
Dirty Float
Prior to the introduction of the Euro, some European Union countries operated with fixed exchange according to the __________ __________ System.
European Monetary
Name two of the three main criticisms of the IMF:
1. Creation of "one-size-fits-all" approach to macroeconomic policies that don't work in every country.
2. "Moral hazards" (behaving recklessly because they know they will be saved if things go wrong).
3. Lack of accountability - it has become too powerful for an institution that lacks any real mechanism for accountability.
The balance-of-trade-equilibrium occurs when a country's residents earnings from exports equal what?
The amount the country's residents pay for imports.
Define banking crisis:
A situation in which a loss of confidence in the banking system leads to a run on the banks, as individuals and companies withdraw their deposits.
A ________ _______ crisis is a situation in which a country cannot service its foreign debt obligations, whether private sector or government debt.
foreign debt
Under the International Development Agency scheme, loans go only to the world's what?
poorest countries
List two of the three main reasons for the collapse of the Bretton Woods Agreement:
1. U.S. financing increases in welfare programs
2. Financial costs of the Vietnam War
3. Speculation that the dollar would have to be devalued relative to other countries.
A fixed exchange rate regime prevents _____________ speculation.
destabilizing