Q.1 Which of the following best defines the International Monetary System?
A system of domestic banking rules
A set of rules governing international trade in goods only
A framework for exchange rates and international payments
A system for setting interest rates globally
Explanation - The International Monetary System provides a framework for countries to conduct international trade and financial transactions, including exchange rates and balance of payments.
Correct answer is: A framework for exchange rates and international payments
Q.2 Which institution was established in 1944 to oversee the International Monetary System?
World Bank
World Trade Organization
International Monetary Fund (IMF)
Bank for International Settlements
Explanation - The IMF was established at the Bretton Woods Conference in 1944 to promote international monetary cooperation and exchange rate stability.
Correct answer is: International Monetary Fund (IMF)
Q.3 The Bretton Woods system was based on which currency as the anchor?
British Pound
Euro
Japanese Yen
US Dollar
Explanation - The Bretton Woods system established the US Dollar as the anchor currency, pegged to gold, with other currencies pegged to the dollar.
Correct answer is: US Dollar
Q.4 Under the gold standard, currencies were directly linked to:
Silver reserves
Gold reserves
Foreign exchange reserves
Oil reserves
Explanation - The gold standard required currencies to be directly convertible into a fixed quantity of gold, ensuring stability in exchange rates.
Correct answer is: Gold reserves
Q.5 Which year marked the collapse of the Bretton Woods system?
1969
1971
1973
1980
Explanation - In 1971, the US suspended the convertibility of the dollar into gold, leading to the collapse of the Bretton Woods system.
Correct answer is: 1971
Q.6 Which type of exchange rate system allows supply and demand to determine currency values?
Fixed exchange rate
Floating exchange rate
Managed float
Gold standard
Explanation - In a floating exchange rate system, market forces determine currency values without direct government control.
Correct answer is: Floating exchange rate
Q.7 Special Drawing Rights (SDRs) are issued by:
World Bank
IMF
UNCTAD
WTO
Explanation - The IMF created SDRs as an international reserve asset to supplement member countries’ official reserves.
Correct answer is: IMF
Q.8 Which of the following is NOT a function of the IMF?
Providing short-term financial assistance
Maintaining exchange rate stability
Promoting free trade agreements
Monitoring global financial stability
Explanation - Free trade agreements fall under the WTO, not the IMF, which focuses on monetary stability and balance-of-payments assistance.
Correct answer is: Promoting free trade agreements
Q.9 Which system replaced the Bretton Woods fixed exchange rate system?
Gold exchange standard
Floating exchange rate system
Currency union system
Barter system
Explanation - After 1971, most major economies shifted to floating exchange rates, where currency values fluctuate with market forces.
Correct answer is: Floating exchange rate system
Q.10 The 'Triffin Dilemma' refers to:
The conflict between fixed exchange rates and domestic monetary policy
The problem of trade protectionism
A clash between fiscal and monetary policies
The issue of inflation versus unemployment
Explanation - Robert Triffin highlighted that the US faced a dilemma under Bretton Woods: providing global liquidity while maintaining dollar convertibility into gold.
Correct answer is: The conflict between fixed exchange rates and domestic monetary policy
Q.11 Which of the following is an example of a currency union?
European Union
Eurozone
ASEAN
NAFTA
Explanation - The Eurozone countries adopted a common currency, the Euro, forming a currency union.
Correct answer is: Eurozone
Q.12 What does 'balance of payments' represent?
The state budget deficit
A country’s total trade only
All transactions between a country and the rest of the world
Only foreign investment inflows
Explanation - Balance of payments is a record of all financial transactions made between residents of a country and the rest of the world.
Correct answer is: All transactions between a country and the rest of the world
Q.13 Which of the following currencies is included in the IMF’s SDR basket?
Swiss Franc
Canadian Dollar
Chinese Yuan
Indian Rupee
Explanation - The SDR basket currently includes the US Dollar, Euro, Japanese Yen, British Pound, and Chinese Yuan.
Correct answer is: Chinese Yuan
Q.14 Which agreement created the IMF and World Bank?
Geneva Agreement
Bretton Woods Agreement
Doha Round
GATT Agreement
Explanation - The Bretton Woods Agreement in 1944 led to the creation of the IMF and the World Bank.
Correct answer is: Bretton Woods Agreement
Q.15 A pegged exchange rate system means:
Currency is determined by market forces only
Currency is fixed to another major currency
Currency value changes daily
Currency is traded freely with no regulation
Explanation - In a pegged exchange rate system, a country ties its currency to another currency to maintain stability.
Correct answer is: Currency is fixed to another major currency
Q.16 Which of the following describes 'currency depreciation'?
Increase in the value of a currency
Decrease in the value of a currency relative to others
Fixing of currency value to gold
Government buying foreign reserves
Explanation - Currency depreciation occurs when a currency loses value compared to foreign currencies in a floating system.
Correct answer is: Decrease in the value of a currency relative to others
Q.17 What was a major reason for the collapse of the gold standard during the Great Depression?
Global inflation
Insufficient gold reserves
Introduction of the Euro
Expansion of free trade
Explanation - Countries could not maintain gold convertibility due to insufficient reserves during economic crises.
Correct answer is: Insufficient gold reserves
Q.18 Which organization primarily focuses on long-term development assistance?
IMF
World Bank
WTO
OECD
Explanation - The World Bank provides long-term loans and projects to support development in low and middle-income countries.
Correct answer is: World Bank
Q.19 In which year was the Euro introduced as a physical currency?
1995
1999
2002
2005
Explanation - Although launched in 1999 as an electronic currency, Euro banknotes and coins entered circulation in 2002.
Correct answer is: 2002
Q.20 Which exchange rate regime gives central banks the most control over their monetary policy?
Currency union
Fixed exchange rate
Floating exchange rate
Dollarization
Explanation - Under floating rates, central banks can use monetary policy independently, unlike fixed systems or currency unions.
Correct answer is: Floating exchange rate
Q.21 Which of the following is a disadvantage of a fixed exchange rate system?
Greater trade stability
Loss of independent monetary policy
Reduced currency speculation
Stable inflation
Explanation - Countries in fixed exchange rate systems cannot adjust interest rates freely, limiting domestic economic policy choices.
Correct answer is: Loss of independent monetary policy
Q.22 The Plaza Accord of 1985 aimed to:
Stabilize oil prices
Depreciate the US Dollar
Create a new gold standard
Form the Eurozone
Explanation - The Plaza Accord was an agreement among major economies to depreciate the US Dollar against the Yen and Deutsche Mark.
Correct answer is: Depreciate the US Dollar
Q.23 Which of the following is an example of 'capital controls'?
Tariffs on imports
Restrictions on foreign currency exchange
Central bank raising interest rates
Government subsidies for exports
Explanation - Capital controls are measures taken to regulate cross-border financial flows, such as limits on foreign exchange transactions.
Correct answer is: Restrictions on foreign currency exchange
Q.24 Which body acts as a forum for central bank cooperation?
World Bank
Bank for International Settlements
OECD
UNCTAD
Explanation - The BIS promotes cooperation among central banks and acts as a bank for them.
Correct answer is: Bank for International Settlements
Q.25 What was the purpose of the Smithsonian Agreement of 1971?
Return to the gold standard
Revalue major currencies after Bretton Woods collapse
Introduce the Euro
Create the IMF
Explanation - The Smithsonian Agreement revalued major currencies following the US decision to suspend gold convertibility, but it failed shortly after.
Correct answer is: Revalue major currencies after Bretton Woods collapse