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CHAPTER 9
MULTIPLE CHOICE
1. For centuries, the global currency that had value in all countries was __________.
A) the U.S. dollar
B) the British pound
C) precious metals
D) the SDR
Answer: C
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
2. On average, what has the annual inflation rate of the industrialized Western states been
over the past three decades?
A) around 15 percent
B) around 50 percent
C) around 5 percent
D) around 10 percent
Answer: C
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
3. What type of exchange rate system is typically utilized in the world today?
A) pegged rate system
B) U.S. dollar system
C) planned system
D) floating rate system
Answer: D
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
4. Many states will bridge the gap between floating and fixed exchange rates by
periodically intervening in the currency markets, usually to promote stability. This type
1
Copyright © 2017, 2014, 2013 by Pearson Education, Inc. All rights reserved.
of intervention is called a(n) __________ system.
A) interventionist
B) periodic float
C) primary float
D) managed float
Answer: D
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
5. Though private speculators may lose out because of it, a successful intervention in
__________ can make money for governments.
A) stock markets
B) free markets
C) large economies
D) global currency markets
Answer: D
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
Answer: C
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
2
Copyright © 2017, 2014, 2013 by Pearson Education, Inc. All rights reserved.
Answer: D
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
8. Central banks in industrialized countries maintain the value of the state’s currency by
limiting the amount of __________ and by preventing high inflation.
A) gold on the market
B) money printed
C) credit
D) distribution
Answer: B
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
9. The system established after World War II to manage the world economy was the
__________.
A) World Trade Organization
B) Bretton Woods system
C) International Monetary Fund
D) World Bank
Answer: B
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
10. The pillars of the international monetary system continue to be the __________ and
the World Bank.
A) International Monetary Fund
B) International Trade Organization
C) Organization of Petroleum Exporting Countries
D) World Trade Organization
Answer: A
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
3
Copyright © 2017, 2014, 2013 by Pearson Education, Inc. All rights reserved.
Difficulty Level: Easy
Skill Level: Remember the Facts
11. The IMF established __________ as the replacement for gold as a world standard.
A) the Special Drawing Right
B) silver
C) floating exchange rates
D) international exchange coins
Answer: A
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
12. Under President Nixon, the international economic system moved from __________
exchange rates to __________ exchange rates.
A) managed float, floating
B) floating, managed float
C) fixed, floating
D) floating, fixed
Answer: C
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
13. The interest rate the government charges when it loans money to private banks is
known as the __________ rate.
A) central bank
B) government
C) reserve
D) discount
Answer: D
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
14. An exchange rate is the rate at which a state’s __________ can be exchanged for a
different state’s __________.
4
Copyright © 2017, 2014, 2013 by Pearson Education, Inc. All rights reserved.
A) currency, debt
B) currency, currency
C) debt, currency
D) goods, goods
Answer: B
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
Answer: A
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Understand the Concepts
Answer: B
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Understand the Concepts
17. __________ exchange rates exist when a government establishes official rates of
exchange for its currency, whereas __________ exchange rates exist when exchange
rates are determined by global currency markets.
A) Managed float, fixed
B) Fixed, floating
C) Floating, hard
D) Hard, managed float
5
Copyright © 2017, 2014, 2013 by Pearson Education, Inc. All rights reserved.
Answer: B
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Understand the Concepts
18. International monetary relations immediately after World War II were based on
__________.
A) floating exchange rates
B) fixed exchange rates
C) the silver standard
D) managed exchange rates
Answer: B
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
19. How does the IMF assist countries in balancing their economies?
A) by providing loans for particular development projects
B) by allowing states to borrow against their deposits of financial reserves and repay the
loans in subsequent years
C) by entering currency markets to support faltering currencies
D) by regulating the amount of currencies available to speculators
Answer: B
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Analyze It
20. The IMF and the World Bank use a __________ system.
A) one-nation, one-vote
B) consensus voting
C) weighted voting
D) hegemonic voting
Answer: C
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
6
Copyright © 2017, 2014, 2013 by Pearson Education, Inc. All rights reserved.
Skill Level: Remember the Facts
21. There is lingering poverty in much of the global South. This is despite the IMF and
World Bank both attempting to promote __________ in poor countries, as part of each of
their missions.
A) state rebuilding
B) economic integration
C) global unity
D) economic development
Answer: D
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
22. Because the U.S. economy no longer held the overwhelming dominance it had in
1944, the United States dropped the __________ in the 1970s.
A) gold economy
B) platinum standard
C) gold standard
D) exchange rate
Answer: C
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
23. In the first three weeks of 2009, after the price of its main export, oil, plummeted,
Russia depreciated its ruble six times. This is an example of the principle of __________.
A) currency devaluation
B) currency easing
C) appreciated currency
D) reduced inflation
Answer: A
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Apply What You Know
24. In recent years, China has maintained a low currency value, relative to other states, in
7
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order to __________.
A) promote exports and boost export-related industries
B) force an increase in domestic consumption
C) improve trade relations with Western states
D) improve trade relations with Southeast Asian states
Answer: A
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Apply What You Know
Answer: A
Learning Objective: 9.1 Describe the effects of the 2008–2009 global financial crisis.
Topic: Globalization and Finance
Difficulty Level: Moderate
Skill Level: Analyze It
Answer: D
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Moderate
Skill Level: Remember the Facts
8
Copyright © 2017, 2014, 2013 by Pearson Education, Inc. All rights reserved.
Answer: B
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Moderate
Skill Level: Analyze It
Answer: C
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Moderate
Skill Level: Analyze It
Answer: C
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
30. How does the International Monetary Fund (IMF) compare with the World Bank?
A) The IMF works to balance international payments, whereas the World Bank works to
balance national accounts.
B) The IMF coordinates international currency exchange and the balance of international
payments, whereas the World Bank provides development loans to developing countries.
C) The IMF has states as members, whereas the World Bank has regional banks such as
the European Bank for Reconstruction and Development as members.
D) The IMF prefers the operation of multinational corporations across borders, whereas
the World Bank prefers the operation of national companies across borders.
Answer: B
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
9
Copyright © 2017, 2014, 2013 by Pearson Education, Inc. All rights reserved.
Topic: The Currency System
Difficulty Level: Moderate
Skill Level: Analyze It
31. Capital goods are products that can be used as __________ for further production.
A) extractions
B) loans
C) inputs
D) standing
Answer: C
Learning Objective: 9.3 Compare and contrast the financial positions of the United States
and China in regard to the potential for future economic growth.
Topic: State Financial Positions
Difficulty Level: Easy
Skill Level: Remember the Facts
32. The __________ is basically the balance of trade, whereas __________ are foreign
investments in and by a country.
A) capital account, changes in currency reserves
B) current account, capital flows
C) trade account, remittances
D) national account, government investments
Answer: B
Learning Objective: 9.3 Compare and contrast the financial positions of the United States
and China in regard to the potential for future economic growth.
Topic: State Financial Positions
Difficulty Level: Easy
Skill Level: Understand the Concepts
33. What is the approximate amount of the United States’ national debt today?
A) $1 trillion
B) $5 trillion
C) $18 trillion
D) $36 trillion
Answer: C
Learning Objective: 9.3 Compare and contrast the financial positions of the United States
and China in regard to the potential for future economic growth.
Topic: State Financial Positions
Difficulty Level: Easy
Skill Level: Remember the Facts
34. The 1997 Asian crisis started when currency speculators began selling off the
currencies of __________.
10
Copyright © 2017, 2014, 2013 by Pearson Education, Inc. All rights reserved.
A) China, Malaysia, the Philippines, and Taiwan
B) Thailand, Japan, Hong Kong, and Malaysia
C) Indonesia, Malaysia, Thailand, and the Philippines
D) Japan, China, Taiwan, and South Korea
Answer: C
Learning Objective: 9.3 Compare and contrast the financial positions of the United States
and China in regard to the potential for future economic growth.
Topic: State Financial Positions
Difficulty Level: Easy
Skill Level: Understand the Concepts
35. The summary of a state’s financial transactions with the rest of the world, including
trade, foreign aid, and the remittance of income by citizens employed abroad, is known as
a __________.
A) balance of payments
B) gross national product
C) merchandise trade
D) capital flow
Answer: A
Learning Objective: 9.3 Compare and contrast the financial positions of the United States
and China in regard to the potential for future economic growth.
Topic: State Financial Positions
Difficulty Level: Easy
Skill Level: Remember the Facts
Answer: C
Learning Objective: 9.3 Compare and contrast the financial positions of the United States
and China in regard to the potential for future economic growth.
Topic: State Financial Positions
Difficulty Level: Easy
Skill Level: Apply What You Know
11
Copyright © 2017, 2014, 2013 by Pearson Education, Inc. All rights reserved.
Answer: D
Learning Objective: 9.3 Compare and contrast the financial positions of the United States
and China in regard to the potential for future economic growth.
Topic: State Financial Positions
Difficulty Level: Easy
Skill Level: Apply What You Know
38. With respect to its position in the international economy, the United States
__________.
A) has had a trade deficit since the early 1980s
B) is as strong relative to other countries as it was in the 1950s
C) has had high unemployment since the mid-1990s
D) was once the world’s leading debtor state, but is now the leading lender state
Answer: A
Learning Objective: 9.3 Compare and contrast the financial positions of the United States
and China in regard to the potential for future economic growth.
Topic: State Financial Positions
Difficulty Level: Easy
Skill Level: Remember the Facts
Answer: A
Learning Objective: 9.3 Compare and contrast the financial positions of the United States
and China in regard to the potential for future economic growth.
Topic: State Financial Positions
Difficulty Level: Easy
Skill Level: Analyze It
Answer: C
Learning Objective: 9.3 Compare and contrast the financial positions of the United States
12
Copyright © 2017, 2014, 2013 by Pearson Education, Inc. All rights reserved.
and China in regard to the potential for future economic growth.
Topic: State Financial Positions
Difficulty Level: Moderate
Skill Level: Analyze It
41. In attempting to join the world capitalist economy in 1991, Russia and Eastern
European countries faced which challenge?
A) integration into the national maritime system
B) devaluing their currencies to curb inflation
C) attracting foreign investment
D) creating instability in currency markets
Answer: C
Learning Objective: 9.3 Compare and contrast the financial positions of the United States
and China in regard to the potential for future economic growth.
Topic: State Financial Positions
Difficulty Level: Easy
Skill Level: Remember the Facts
Answer: C
Learning Objective: 9.4 Identify two risks to firms who engage in foreign direct
investment and two risks to countries who host foreign direct investment.
Topic: Multinational Business
Difficulty Level: Moderate
Skill Level: Remember the Facts
Answer: D
Learning Objective: 9.4 Identify two risks to firms who engage in foreign direct
investment and two risks to countries who host foreign direct investment.
Topic: Multinational Business
Difficulty Level: Easy
Skill Level: Remember the Facts
13
Copyright © 2017, 2014, 2013 by Pearson Education, Inc. All rights reserved.
44. The most important types of multinational corporations are __________ corporations.
A) financial
B) industrial
C) service
D) agricultural
Answer: B
Learning Objective: 9.4 Identify two risks to firms who engage in foreign direct
investment and two risks to countries who host foreign direct investment.
Topic: Multinational Business
Difficulty Level: Easy
Skill Level: Remember the Facts
45. The targets of most foreign direct investment in the world are __________.
A) Western industrialized states
B) OPEC members
C) states in the global South
D) Asia and the Pacific
Answer: A
Learning Objective: 9.4 Identify two risks to firms who engage in foreign direct
investment and two risks to countries who host foreign direct investment.
Topic: Multinational Business
Difficulty Level: Easy
Skill Level: Remember the Facts
46. A state in which a foreign MNC operates is called the __________ country, whereas
the state where the MNC has its headquarters is called the __________ country.
A) subsidiary, headquarters
B) host, home
C) home, host
D) investor, investing
Answer: B
Learning Objective: 9.4 Identify two risks to firms who engage in foreign direct
investment and two risks to countries who host foreign direct investment.
Topic: Multinational Business
Difficulty Level: Moderate
Skill Level: Understand the Concepts
47. An example of a U.S.-based MNC bending to pressure from the U.S. government
regarding foreign direct investment is __________.
A) Chevron in Angola
B) Unocal in Afghanistan
C) TotalFinaElf in Nigeria
14
Copyright © 2017, 2014, 2013 by Pearson Education, Inc. All rights reserved.
D) Conoco in Iran
Answer: D
Learning Objective: 9.4 Identify two risks to firms who engage in foreign direct
investment and two risks to countries who host foreign direct investment.
Topic: Multinational Business
Difficulty Level: Easy
Skill Level: Apply What You Know
48. MNCs and the countries in which they invest often come into conflict over
__________.
A) inflation rates
B) taxation and the method of transportation of goods to and from the country
C) monetary policy and trade policy
D) fiscal policy and the language to be used in negotiations
Answer: C
Learning Objective: 9.4 Identify two risks to firms who engage in foreign direct
investment and two risks to countries who host foreign direct investment.
Topic: Multinational Business
Difficulty Level: Easy
Skill Level: Remember the Facts
49. How does foreign direct investment compare with indirect portfolio investment?
A) Foreign direct investment involves investments such as owning a factory, company, or
real estate in a foreign country, whereas indirect portfolio investment involves such
things as buying stocks and bonds or making loans to a foreign company.
B) Foreign direct investment involves investments such as owning a factory, company, or
real estate in a foreign country, whereas indirect portfolio investment involves such
things as taking loans from a foreign company.
C) Foreign direct investment involves actions such as trading in the currency of a foreign
country, whereas indirect portfolio investment involves such things as buying stocks and
bonds or making loans to a foreign company.
D) Foreign direct investment involves making loans to a foreign company, whereas
indirect portfolio investment involves taking loans from a foreign company.
Answer: A
Learning Objective: 9.4 Identify two risks to firms who engage in foreign direct
investment and two risks to countries who host foreign direct investment.
Topic: Multinational Business
Difficulty Level: Moderate
Skill Level: Analyze It
50. What is the international business environment most conducive to the creation of
wealth by MNCs?
A) rapidly changing conditions so that no one government can exercise control over an
15
Copyright © 2017, 2014, 2013 by Pearson Education, Inc. All rights reserved.
MNC
B) countries being divided into rival trading blocs so that MNCs can take advantage of
bargaining
C) stable international security so investments are not threatened
D) policies of mercantilism
Answer: C
Learning Objective: 9.4 Identify two risks to firms who engage in foreign direct
investment and two risks to countries who host foreign direct investment.
Topic: Multinational Business
Difficulty Level: Moderate
Skill Level: Analyze It
TRUE/FALSE
51. Except for 19 states that share the euro, each state uses its own currency, which has
no inherent value.
Answer: True
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
52. Reserves of hard currency and gold maintained by states back a national currency and
cover short-term imbalances in international financial flows.
Answer: True
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Understand the Concepts
53. Though limited in efforts to do so, governments cooperate to manage the fluctuations
of exchange rates.
Answer: True
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Understand the Concepts
54. Governments often prefer a weak value for their own currency.
16
Copyright © 2017, 2014, 2013 by Pearson Education, Inc. All rights reserved.
Answer: True
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
55. The rise of the dollar–gold standard in 1971 reflected the decline of America’s
preeminent financial position.
Answer: False
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
56. From 1945 to 1971, the World Bank and IMF worked with states’ central banks to
maintain stable international monetary relations by pegging state currencies to the U.S.
dollar and the dollar to gold.
Answer: True
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
57. International debt results from a protracted imbalance in capital flows—a state
borrowing more than it lends—to cover a chronic trade deficit or government budget
deficit.
Answer: True
Learning Objective: 9.3 Compare and contrast the financial positions of the United States
and China in regard to the potential for future economic growth.
Topic: State Financial Positions
Difficulty Level: Easy
Skill Level: Remember the Facts
Answer: False
Learning Objective: 9.4 Identify two risks to firms who engage in foreign direct
investment and two risks to countries who host foreign direct investment.
Topic: Multinational Business
17
Copyright © 2017, 2014, 2013 by Pearson Education, Inc. All rights reserved.
Difficulty Level: Easy
Skill Level: Remember the Facts
Answer: True
Learning Objective: 9.4 Identify two risks to firms who engage in foreign direct
investment and two risks to countries who host foreign direct investment.
Topic: Multinational Business
Difficulty Level: Easy
Skill Level: Remember the Facts
60. Multinational corporations try to maneuver to obtain positive terms and search for
states with stable currencies and political environments in which to make direct
investments.
Answer: True
Learning Objective: 9.4 Identify two risks to firms who engage in foreign direct
investment and two risks to countries who host foreign direct investment.
Topic: Multinational Business
Difficulty Level: Easy
Skill Level: Remember the Facts
61. The relative value of __________ can be set by fixed exchange rates.
Answer: currencies
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Remember the Facts
63. Use of the gold standard was an example of a(n) __________ exchange rate.
18
Copyright © 2017, 2014, 2013 by Pearson Education, Inc. All rights reserved.
Answer: fixed
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Easy
Skill Level: Understand the Concepts
64. The __________ is the interest rate that the government charges when it loans money
to private banks.
65. Industrialized states turn __________ policy over to semiautonomous central banks to
ensure discipline in printing money.
Answer: monetary
Learning Objective: 9.3 Compare and contrast the financial positions of the United States
and China in regard to the potential for future economic growth.
Topic: State Financial Positions
Difficulty Level: Easy
Skill Level: Remember the Facts
66. In an effort to keep track of the flow of money in and out of states, the __________
operates a system of national accounts.
19
Copyright © 2017, 2014, 2013 by Pearson Education, Inc. All rights reserved.
68. __________ investments involve tangible goods, unlike portfolio investments.
69. Some multinational corporations sell goods, whereas others, such as McDonald’s, sell
__________.
Answer: services
Learning Objective: 9.4 Identify two risks to firms who engage in foreign direct
investment and two risks to countries who host foreign direct investment.
Topic: Multinational Business
Difficulty Level: Easy
Skill Level: Understand the Concepts
70. Foreign direct investment in Russia, Bolivia, and Venezuela dropped significantly
after the host country __________ foreign assets.
SHORT ANSWER
71. What institutions were created at Bretton Woods? How did they work? What were
their mandates?
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
Topic: The Currency System
Difficulty Level: Moderate
Skill Level: Apply What You Know
72. Since governments have the power to print money as they need it, why/how do states
fall into debt? Why is it so difficult for states to get out of debt?
Learning Objective: 9.2 Summarize the three types of exchange rate systems adopted by
states.
20
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