Exam (elaborations)
International Money and Finance past paper for January 2015.
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International Money and Finance past paper for January 2015 for Loughborough University.
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INTERNATIONAL MONEY AND FINANCE(14ECC003)
January 2015 3 Hours
Answer THREE questions.
All questions carry equal marks.
Calculators are not permitted.
1. How did the Bretton Wood system differ from the gold standard? What was the
primary purpose of the IMF under the Bretton Woods? Why did the Bretton Woods
system finally collapse?
2. What is the balance of payment disequilibrium? Can a country run a balance of
payment deficit indefinitely? Explain how balance of payment disequilibrium can be
automatically self-correcting.
3. Explain the difference between Absolute purchasing power parity, PPP, and
relative PPP. Explain why relative PPP may hold when absolute PPP does not. List
four reasons why deviations from PPP might occur; then carefully explain how
each causes such deviations.
4. Examine the effects of a rise in the foreign price level under both fixed and flexible
exchange rates within the context of the monetary approach to the exchange rate
determination. Critically assess the contribution and limitations of this model.
5. What are the insights provided by the Krugman’s first generation crisis model?
Which, if any, of the crisis models best fits the broad outline of the recent crisis
﴾mid 2007 to 2010﴿?
6. Explain why, in the Target Zone model, the behaviour of the exchange rate follows
an S-curve. What are the implications for policy? What are the advantages and
disadvantages of setting broad rather than narrow fluctuation bounds for a fixed
exchange rate?
7. Is the current Euro area an optimum currency area? Discuss. Critically examine
three suggested solutions to the recent sovereign debt crisis that threatened the
survival of the union. Which one do you think is the most important and why?
8. Policy coordination among industrial countries has been an important issue on the
international macroeconomic policy agenda since the collapse of the Bretton
Woods system. Use any of the floating exchange rate models we have developed
in this unit to explain separately how the fiscal and monetary policies followed in
the rest of the world affect macroeconomic outcomes in an open economy under
floating exchange rates.
AHMAD H. AHMAD
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