Exam (elaborations)

International Business 200 Exam 2 Questions And Answers 2025 Update.

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INTERNATIONAL BUSINESS

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INTERNATIONAL BUSINESS

©THESTAR 2024/2025 ALL RIGHTS RESERVED 12:54PM. 1 International Business 200 Exam 2 Questions And Answers 2025 Update. International monetary system - Answera global framework that governs the exchange of money, capital, and goods and services between countries bretton woods system - Answera...

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©THESTAR 2024/2025 ALL RIGHTS RESERVED 12:54PM.

International Business 200 Exam 2 Questions
And Answers 2025 Update.

International monetary system - Answer✔a global framework that governs the exchange of
money, capital, and goods and services between countries

bretton woods system - Answer✔a system through which a fixed currency exchange rate could
be created using gold as the universal standard

why did the bretton woods system end? - Answer✔President Richard Nixon decided that the
United States could no longer support the system.

outcome from the collapse of the bretton woods system - Answer✔international monetary
funds (IMF) members have been able to choose any form of exchange arrangement they wish
(except pegging their currency to gold)

floating rates - Answer✔an interest rate that changes over time

facets of monetary systems - Answer✔- currency
- exchange controls/convertibility
- exchange rate regime
- reserve asset (gold, USD or hard currency, SDRs)

why do countries not want their currency traded to other currencies - Answer✔it can be
expensive for them - there's a lot of fluctuation in exchange rate which can lead to potential
losses if the currency value changes unfavorably during the transaction

convertibility types - Answer✔freely convertible (anyone can convert to any currency)
externally convertible (only foreigners can exchange local currency for other currencies)
non convertible (no one can convert to other currencies)

why limit convertibility? - Answer✔preserve foreign exchange reserves to service international
debt, allow government to have funds to make imports, government afraid of capital flight

foreign exchange reserves - Answer✔stocks of foreign currency that governments maintain to
buy their own currency on the foreign exchange market

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, ©THESTAR 2024/2025 ALL RIGHTS RESERVED 12:54PM.

capital flight - Answer✔a large and sudden reduction in the demand for assets located in a
country

hedging (pegging) - Answer✔protecting against cost increases with contracts that allow a
company to buy supplies in the future at designated prices (southwest hedged to oil when it
was $30 a barrel, later it rose to $150 a barrel but since they hedged they saved a lot of money
on oil)

why peg to a currency? - Answer✔- eliminates foreign exchange risk
- makes trade more "fair"
- easier for consumer and businesses to compare prices

exchange rate regimes - Answer✔1. managed (dirty) float
- governments intervene in the currency markets as they perceive their national interests to be
served (smoothing market irregularities)
2. free float
- closest approach to perfect competition; aggregate supply and demand for currency affect
exchange rates - not government intervention
Percent of IMF countries using certain exchange regimes in (as of last report in 2020) -
Answer✔16.1% free floating currencies
16.7% managed (dirty) float
13.6% adjustable (crawling) peg
12.5% fixed peg
7.3% do not issue currencies of their own - they use other currencies like the Euro, USD, etc. -
panama, ecuador, zimbabwe)

how many USD was an ounce of gold worth during the Bretton Woods time - Answer✔35 USD

debt death spiral - Answer✔a spiral of how debt continues on and on

special drawing rights (SDR) - Answer✔a weighted average of various convertible currencies

what's the purpose of SDRs - Answer✔it's a way for participating member countries to enhance
their reserve assets

reserve assets - Answer✔financial instruments that central banks use to manage a country's
balance of payments, regulate the exchange rate, and maintain confidence in the economy

what are the 5 currencies in the SDR basket - Answer✔USD, Euro, Japanese Yen, British Pound,
Chinese Yuan

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