国际金融Ch002 International Monetary System

Eun & Resnick 4eCHAPTER 2 International Monetary SystemEvolution of the International Monetary SystemBimetallism: Before 1875Classical Gold Standard: 1875–1914Interwar Period: 1915–1944Bretton Woods System: 1945–1972The Flexible Exchange Rate Regime: 1973–PresentThe Current Exchange Rate ArrangementsEuropean Monetary SystemThe Euro and the European Monetary UnionA Brief History of the EuroWhat Are the Benefits of Monetary Union?Costs of Monetary UnionProspects of the Euro: Some CriticalQuestionsThe Mexican Peso CrisisThe Asian Currency CrisisOrigins of the Asian Currency CrisisLessons from the Asian Currency CrisisThe Argentine Peso CrisisFixed versus Flexible Exchange Rate RegimesSummaryMINI CASE: Will the U.K. Join the Euro Club?Evolution of the International Monetary System1)The international monetary system can be defined as the institutional frameworkwithin which:a)international payments are madeb)movement of capital is accommodatedc)exchange rates among currencies are determinedd)all of the aboveAnswer: d page 25.2)The international monetary system went through several distinct stages of evolution.These stages are summarized, in alphabetic order, as follows(i)- Bimetallism(ii)- Bretton Woods system(iii)- Classical gold standard(iv)- Flexible exchange rate regime(v)- Interwar periodThe chronological order that they actually occurred is:a) (iii), (i), (iv), (ii), and (v)b) (i), (iii), (v), (ii), and (iv)c) (vi), (i), (iii), (ii), and (v)d) (v), (ii), (i), (iii), and (iv)Answer: bBimetallism: Before 18753)Gresham’s Law states that ( )a)Bad money drives good money out of circulation.b)Good money drives bad money out of circulationc)If a country bases its currency on both gold and silver, at an official exchange rate,it will be the more valuable of the two metals that circulate.d)None of the above.Answer: a4)In the 1850s the French franc was valued by both gold and silver, under the officialFrench ratio which equated a gold franc to a silver franc 15½ times as heavy. At the same time, the gold from newly discovered mines in California poured into themarket, depressing the value of gold. As a result,a)The franc effectively became a silver currency.b)The franc effectively became a gold currency.c)Silver became overvalued under the French official ratiod)Answers a) and c) are correctAnswer: b5)Prior to the 1870s, both gold and silver were used as international means of paymentand the exchange rates among currencies were determined by either their gold orsilver contents. Suppose that the dollar was pegged to gold at $30 per ounce, theFrench franc is pegged to gold at 90 francs per ounce and to silver at 6 francs perounce of silver, and the German mark pegged to silver at 1 mark per ounce of silver.What would the exchange rate between the U.S. dollar and German mark be under this system?a) 1 German mark = $2b) 1 German mark = $0.50c) 1 German mark = $45d) 1 German mark = $1Answer: a page 26.Rationale: Start with $30, buy one ounce of gold. Sell that ounce of gold for FF 90. Sell the FF90 for 15 ounces of silver. Buy 15 German marks. Thus, $30 = DM15.Classical Gold Standard: 1875-19146)An “international” gold standard can be said to exist whena)gold alone is assured of unrestricted coinageb)there is two-way convertibility between gold and national currencies at stableratiosc)gold may be freely exported or importedd)all of the aboveAnswer: d - p. 287)Suppose that the British pound is pegged to gold at £6 per ounce, whereas one ounceof gold is worth €12. Under the gold standard, any misalignment of the exchange rate will be automatically corrected by cross border flows of gold. Calculate the possible savings for buying €1,000, if the British pound becomes undervalued and trades for €1.80. (Assume zero shipping costs).(Hint: Gold is first purchased using the devalued British pound from the Bank ofEngland, then shipped to France and sold for €1,000 t o the Bank of France).a)£55.56b)£65.56c)£75.56d)£85.56Answer: a - p. 28Rationale: Since an ounce of gold should be worth the same north or south of the English Channel, it should be €12 = £6. So our exchange rate implied by gold prices is €2 = £1, therefore buying €1,000 should cost £500:€1,000×£1/€2 = £500.00If the pound is undervalued at €1.80, we find that €1,000 costs £555.56:€1,000×£1/€1.80 = £555.56Savings in buying €1,000 by using gold and not posted exchange rates:£555.56 - £500.00 = £55.568)Under a gold standard, if Britain exported more to France than France exported toGreat Britain,a)Such international imbalances of payment will be corrected automatically.b)This type of imbalance will not be able to persist indefinitelyc)Net export from Britain will be accompanied by a net flow of gold in the oppositedirection.d)All of the aboveAnswer: d page 27.9)Suppose that Britain pegs the pound to gold at six pounds per ounce, whereas theexchange rate between pounds and U.S. dollars is $5 = £1. What should an ounce of gold be worth in U.S. dollars?a)$29.40b)$30.00c)$0.83d)$1.20Answer: b)Rationale: 1oz. Au = £6 and £1 = $5 so £6 = $30 = 1oz. Au10)Under the gold standard, international imbalances of payment will be correctedautomatically under thea)Gresham Exchange Rate regimeb)European Monetary Systemc)Price-specie-flow mechanismd)Bretton Woods AccordAnswer: cInterwar Period11)During the period between World War I and World War IIa)The major European powers and the U.S. returned to the gold standard and fixedexchange rates.b)While most countries abandoned the gold standard during World War I,international trade and investment flourished during the interwar period under a coherent international monetary system.c)The U.S. dollar emerged as the dominant world currency, gradually replacing theBritish pound for the role.d)None of the above.Answer: c 29.12)During the period between World War I and World War II, many central banksfollowed a policy of sterilization of golda)This restricted the rate of growth in the supply of goldb)By matching inflows and outflows of gold respectively with reductions andincreases in domestic money and credit.c)By matching inflows and outflows of gold respectively with increases andreductions in domestic money and credit.d)None of the above.Answer: b page 29.13)At the outbreak of World War Ia)Major countries such as Great Britain, France, Germany and Russia suspendedredemption of banknotes in goldb)Major countries such as Great Britain, France, Germany and Russia imposedembargoes on the export of goldc)The classical gold standard was abandonedd)All of the above.Answer: b page 28Bretton Woods System: 1945-197214)Under the Bretton Woods systema)there was an explicit set of rules about the conduct of international monetarypoliciesb)each country was responsible for maintaining its exchange rate within 1 percent ofthe adopted par value by buying or selling foreign exchanges as necessaryc)the U.S. dollar was the only currency that was fully convertible to goldd)all of the aboveAnswer: d.15)Under the Bretton Woods system:a)Each country established a par value for its currency in relation to the dollar.b)The U.S. dollar was pegged to gold at $35 per ounce.c)each country was responsible for maintaining its exchange rate within 1 percent ofthe adopted par value by buying or selling foreign exchanges as necessaryd)all of the aboveAnswer: d.16)Special Drawing Rights (SDR) are:a)an artificial international reserve allotted to the members of the InternationalMonetary Fund (IMF), who can then use it for transactions among themselves orwith the IMFb) a “portfolio” of currencies, and its value tends to be more stable than thecurrencies that it is comprised ofc)used in addition to gold and foreign exchanges, to make international paymentsd)all of the aboveAnswer: d - p. 32European Monetary System17)To pave the way for the European Monetary Union, the member countries of theEuropean Monetary System agreed to achieve a convergence of their economies.Which of the following is NOT a condition of convergence:a)Keep the ratio of government budget deficits to GDP below 3 percentb)Keep gross public debts below 60 percent of GDPc)Achieve a high degree of price stabilityd)Maintain its currency at a fixed exchange rate to the ERMAnswer d) page 38.For d) to be true, it s hould read “Maintain its currency within the prescribed exchange rate ranges of the ERM.”18)The European Monetary System (EMS) has the following chief objectives:a)to establish a “zone of monetary stability” in Europeb)to coordinate exchange rate policies vis-à-vis the non-EMS currenciesc)to pave the way for the eventual European monetary uniond)all of the aboveAnswer: d - p. 3819)Benefits from adopting a common European currency includea)Reduced transaction costsb)Elimination of exchange rate riskc)Increased price transparency will promote Europe-wide competitiond)All of the aboveAnswer d) page 41-42.20)Monetary policy for the euro-12 countries is now conducted by:a)The Federal Reserveb)The Bundesbankc)European Central Bankd)None of the aboveAnswer c) page 40.Fixed versus Flexible Exchange Rate Regimes21)A “good” (or ideal) international monetary system should provide:a)liquidity, elasticity, and flexibilityb)elasticity, sensitivity, and reliabilityc)liquidity, adjustments, and confidenced)none of the aboveAnswer: c - p. 54。