MGMT 450 - Chapter 7

5 Written Questions

1. Sale of a good to a resident of a foreign country
2. ●Many experts believe collapse of the international economy after WWI led to WWII
   ●Rise of fascist dictators the result of political instability caused by post WWI economic instability
   ●Allies decided that after WWII they "won the war, lost the peace"
   ●Don't repeat this mistake after WWII
3. British term denoting trade in services
4. Difference between a country's service exports and imports
5. ●Aug 15, 1971: President Nixon announced US would no longer redeem gold at $35 per ounce
   ●Exchange rates began to "float", creating a flexible exchange rate system
   ●Smithsonian Conference, Dec 1971: central bankers restore fixed exchange rates with new par values (gold=$38/ounce)

5 Matching Questions

1. The Bretton Woods Era
2. Errors and Omissions Account
3. International Monetary Fund (IMF)
4. Capital Account
5. Capital Outflows: Debits

1. a ●44 countries met in Bretton Woods, New Hampshire, in 1944
   ●Goal: to create a postwar economic environment to promote worldwide peace and prosperity
   ●Renewed gold standard on modified basis (dollar-based)
   ●Created International Bank for Reconstruction and Development and International Monetary Fund
2. b Agency created by the Bretton Woods Agreement to promote international monetary cooperation after World War II
3. c 1) Ownership of foreign assets by residents of Country A increases
   2) Foreign ownership of assets in Country A declines
4. d BOP account that results from measurement errors; equals the negative of the sum of the current account, the capital account, and the official reserves account
5. e BOP account that records capital transactions between residents of one country and those of other countries

5 Multiple Choice Questions

1. ●Measures and records all economic transactions between residents of one country and residents of all other countries during specified time periods
   ●Provides understanding of performance of each country's economy in international markets
   ●Signals fundamental changes in country competitiveness
   ●Assists policy makers in designing appropriate public policies
   1. Balance of Payment (BOP) Accounting System
   2. Balance on Merchandise Trade
   3. Major Components of the BOP Accounting System
   4. 4 Important Aspects of the BOP Accounting System
2. ●International monetary system based on the willingness of countries to buy or sell their paper currencies for gold at a fixed rate
   ●Created a fixed exchange rate system
   1. Gold Standard
   2. Flight Capital
   3. World Bank Group
   4. IMF Quotas
3. System in which exchange rates are determined by supply and demand
   1. International Monetary System
   2. Flexible Exchange Rate System
   3. Exchange Rate
   4. Fixed Exchange Rate System
4. Portfolio investments with maturities of more than one year
   1. Trade in Invisibles
   2. Bretton Woods Agreement
   3. Short-Term Portfolio Investments
   4. Long-Term Portfolio Investments
5. ●BOP balance that measures changes in a country's official reserves
   ●It records the net impact of the Central Bank's intervention in the foreign-exchange market in support of the local currency
   1. Current Account Balance
   2. Official Reserves Account
   3. Official Settlements Balance
   4. Capital Outflows: Debits

5 True/False Questions

1. European Union → ●US has huge current account deficit
   ●US has huge capital account surplus
   ●US official reserve account changes very little

   True        False

2. International Monetary System → Agency created by the Bretton Woods Agreement to promote international monetary cooperation after World War II

   True        False

3. Flight Capital → ●Deposit by a country, partly in gold and in home currency, to become a member of the IMF
   ●Triple Function
   -size of voting power
   -serves as part of country's international reserves
   -size of borrowing power

   True        False

4. World Bank Group → ●International monetary system based on the willingness of countries to buy or sell their paper currencies for gold at a fixed rate
   ●Created a fixed exchange rate system

   True        False

5. Types of Current Account Transactions → ●Exports and imports of goods
   ●Exports and imports of services
   ●Investment income
   ●Gifts

   True        False