Question

Mark all of the true statements below concerning the current international monetary regime.

A. Most countries do not choose floating exchange rate regimes.

B. Many countries lack a nominal anchor, and there have been many hyperinflations.

C. The World Trade Organization serves as the international lender of last resort.

D. There is no international lender of last resort in the current system.

Answer 1

A. This is true. Most small open countries fear a floating rate regime and prefer a fixed exchange rate either pegged to dollar or a basket of currencies as they want to reduce the risks associated with volatility of currencies.

B. This is true. Countries like Zimbabwe have faced hyperinflation as they have lacked any kind of nominal anchor. Nominal anchors include exchange rate targets, money supply targets, inflation targets.

C. This is not true. A lender of last resort usually refers to the central bank of a country.

D. This is true. IMF can support countries with financial aid. However it's not the lender of last resort officially as even it's ILLR facility does not have the authority to print money or use any kind of mechanisms which central banks can use.