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Chapter 2: World Trade and the International Monetary System




Question;11. Decreases in currency values within a fixed;rate system are called devaluations.;12. Decreases in currency values within a;floating rate system are called devaluations.;13. Special Drawing Rights (SDRs) are distributed;to commercial banks within the European Union (EU) in proportion to that member?s;proportion of EU trade.;14. ?The snake? refers to the serpentine path;that exchange rates have followed since the introduction of the euro in 2002..;15. Moral hazard is the risk that the existence;of a contract will change the behaviors of parties to the contract.;16. IMF loans to troubled economies are unlikely;to change the behaviors of investors, because investors can assess the risks of;moral hazard for themselves.;17. Subprime loans are loans that are issued at;an interest rate below the prime rate.;18. Liquidity refers to the ease with which an;asset can be exchanged for another asset of equal value.


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