INTERNATIONAL FINANCE THEORY AND
POLICY CERTIFICATION EVALUATION
COMPLETE QUESTIONS AND SOLUTIONS
GRADED APLUS
●● Trilemma
Answer: Impossible to have all three: exchange rate stability, monetary
policy autonomy, free capital flows.
●● Gold Standard Era
Answer: 1870-1914. Suspended WWI, briefly restored 1918-1939,
replaced by Bretton Woods 1944.
●● U.S. gold convertibility change 1934
Answer: Devaluation NOT revaluation. Price went from $20.67 to $35
per ounce meaning MORE dollars needed per ounce = dollar worth
LESS.
●● Bretton Woods 1944 created
Answer: IMF, World Bank, GATT (predecessor to WTO), fixed
exchange rate system. Did NOT create ECB (that came in 1999).
●● Comparative advantage
, Answer: Gains from trading GOODS AND SERVICES.
●● Portfolio diversification
Answer: Gains from trading FINANCIAL ASSETS.
●● Intertemporal trade
Answer: Savers lending to borrowers across time.
●● Debt instruments
Answer: Fixed repayment regardless of conditions (bonds, deposits).
●● Equity instruments
Answer: Variable returns tied to economic performance (stocks, real
estate).
●● Eurodollars
Answer: US dollars deposited OUTSIDE the United States.
●● Shadow banks
Answer: Financial institutions performing bank-like functions but
outside traditional regulation (hedge funds, money market funds,
investment banks).
POLICY CERTIFICATION EVALUATION
COMPLETE QUESTIONS AND SOLUTIONS
GRADED APLUS
●● Trilemma
Answer: Impossible to have all three: exchange rate stability, monetary
policy autonomy, free capital flows.
●● Gold Standard Era
Answer: 1870-1914. Suspended WWI, briefly restored 1918-1939,
replaced by Bretton Woods 1944.
●● U.S. gold convertibility change 1934
Answer: Devaluation NOT revaluation. Price went from $20.67 to $35
per ounce meaning MORE dollars needed per ounce = dollar worth
LESS.
●● Bretton Woods 1944 created
Answer: IMF, World Bank, GATT (predecessor to WTO), fixed
exchange rate system. Did NOT create ECB (that came in 1999).
●● Comparative advantage
, Answer: Gains from trading GOODS AND SERVICES.
●● Portfolio diversification
Answer: Gains from trading FINANCIAL ASSETS.
●● Intertemporal trade
Answer: Savers lending to borrowers across time.
●● Debt instruments
Answer: Fixed repayment regardless of conditions (bonds, deposits).
●● Equity instruments
Answer: Variable returns tied to economic performance (stocks, real
estate).
●● Eurodollars
Answer: US dollars deposited OUTSIDE the United States.
●● Shadow banks
Answer: Financial institutions performing bank-like functions but
outside traditional regulation (hedge funds, money market funds,
investment banks).
