Question 1

Historically, the leading official reserve asset was

Accepted Answer

A) gold. 
B) the U.S. dollar. 
C) the British pound. 
D) the German mark. 
A) gold. 
B) the U.S. dollar. 
C) the British pound. 
D) the German mark. A

Question 2

On August 15, 1971, the United States

Accepted Answer

A) returned to the gold standard. 
B) suspended the convertibility of dollars into gold. 
C) provided unlimited dollar reserves to the German central bank to help end a speculative attack on the mark. 
D) provided unlimited dollar reserves to the Bank of England to help end a speculative attack on the pound. 
A) returned to the gold standard. 
B) suspended the convertibility of dollars into gold. 
C) provided unlimited dollar reserves to the German central bank to help end a speculative attack on the mark. 
D) provided unlimited dollar reserves to the Bank of England to help end a speculative attack on the pound. B

Question 3

Under the Bretton Woods system the international reserve currency was the

Accepted Answer

A) U.S. dollar. 
B) British pound. 
C) German mark. 
D) Japanese yen. 
A) U.S. dollar. 
B) British pound. 
C) German mark. 
D) Japanese yen. A

Question 4

Explicit capital controls are

Accepted Answer

A) used by most industrialized countries. 
B) an important reason why domestic and foreign assets are not perfect substitutes. 
C) less important than information barriers as an obstacle to the international diversification of portfolios. 
D) the most important reason why interest rates differ internationally on assets with similar risk and liquidity characteristics. 
A) used by most industrialized countries. 
B) an important reason why domestic and foreign assets are not perfect substitutes. 
C) less important than information barriers as an obstacle to the international diversification of portfolios. 
D) the most important reason why interest rates differ internationally on assets with similar risk and liquidity characteristics.

Question 5

An unsterilized foreign-exchange intervention occurs

Accepted Answer

A) whenever a central bank purchases or sells domestic currency. 
B) whenever a central bank purchases or sells foreign currency. 
C) whenever a central bank allows the monetary base to respond to the sale or purchase of domestic currency. 
D) whenever a central bank fails to reduce its holdings of gold by the amount of a foreign-exchange purchase. 
A) whenever a central bank purchases or sells domestic currency. 
B) whenever a central bank purchases or sells foreign currency. 
C) whenever a central bank allows the monetary base to respond to the sale or purchase of domestic currency. 
D) whenever a central bank fails to reduce its holdings of gold by the amount of a foreign-exchange purchase.

Question 6

In the early 2000s, what problem did the Argentine central bank face?

Accepted Answer

A) Maintaining the exchange rate at the current level while speculators took actions that would cause it to depreciate 
B) Maintaining the exchange rate at the current level while speculators took actions that would cause it to appreciate 
C) Reducing the Argenine budget deficit 
D) Curbing Argentine inflation 
A) Maintaining the exchange rate at the current level while speculators took actions that would cause it to depreciate 
B) Maintaining the exchange rate at the current level while speculators took actions that would cause it to appreciate 
C) Reducing the Argenine budget deficit 
D) Curbing Argentine inflation

Question 7

If the U.S. current account balance is positive,

Accepted Answer

A) U.S. citizens must have purchased more merchandise abroad than they sold abroad. 
B) the foreign-exchange value of the dollar must be rising. 
C) the foreign-exchange value of the dollar must be falling. 
D) U.S. citizens have funds to lend to foreigners. 
A) U.S. citizens must have purchased more merchandise abroad than they sold abroad. 
B) the foreign-exchange value of the dollar must be rising. 
C) the foreign-exchange value of the dollar must be falling. 
D) U.S. citizens have funds to lend to foreigners.

Question 8

U.S. officials carry out foreign-exchange interventions through

Accepted Answer

A) the U.S. Treasury's Office of Foreign Exchange Management. 
B) the U.S. Treasury's Exchange Stabilization Fund. 
C) the Fed's Brussels office. 
D) the International Monetary Fund's Office of Official Interventions. 
A) the U.S. Treasury's Office of Foreign Exchange Management. 
B) the U.S. Treasury's Exchange Stabilization Fund. 
C) the Fed's Brussels office. 
D) the International Monetary Fund's Office of Official Interventions.

Question 9

Which of the following will NOT result from an unsterilized intervention in which the central bank sells foreign assets to purchase domestic currency?

Accepted Answer

A) Domestic interest rates will rise. 
B) The foreign-exchange value of the domestic currency will rise. 
C) The central bank will experience a decrease in international reserves. 
D) The domestic money supply will rise. 
A) Domestic interest rates will rise. 
B) The foreign-exchange value of the domestic currency will rise. 
C) The central bank will experience a decrease in international reserves. 
D) The domestic money supply will rise.

Question 10

The equilibrium exchange rate

Accepted Answer

A) is determined by the relative amounts of gold contained in each country's currency. 
B) is determined monthly by the International Monetary Fund. 
C) in the short run reflects the relative purchasing power of each country's currency. 
D) makes investors indifferent between holding domestic and foreign assets. 
A) is determined by the relative amounts of gold contained in each country's currency. 
B) is determined monthly by the International Monetary Fund. 
C) in the short run reflects the relative purchasing power of each country's currency. 
D) makes investors indifferent between holding domestic and foreign assets.

Question 11

The formal name of the World Bank is

Accepted Answer

A) the International Monetary Fund. 
B) the International Bank for Reconstruction and Development. 
C) the United Nations Bank for Economic Stability. 
D) the Bank for International Financial Stability and Reform. 
A) the International Monetary Fund. 
B) the International Bank for Reconstruction and Development. 
C) the United Nations Bank for Economic Stability. 
D) the Bank for International Financial Stability and Reform.

Question 12

If the Fed wants to increase the value of the dollar, it will

Accepted Answer

A) sell foreign securities and buy dollars in international currency markets. 
B) buy foreign securities and sell dollars in international currency markets. 
C) buy foreign securities and also buy dollars in international currency markets. 
D) sell foreign securities and also sell dollars in international currency markets. 
A) sell foreign securities and buy dollars in international currency markets. 
B) buy foreign securities and sell dollars in international currency markets. 
C) buy foreign securities and also buy dollars in international currency markets. 
D) sell foreign securities and also sell dollars in international currency markets.

Question 13

Foreign-exchange market interventions will always

Accepted Answer

A) lead to a decline in domestic interest rates relative to foreign interest rates. 
B) lead to a rise in domestic interest rates relative to foreign interest rates. 
C) lead to a decline in the domestic money supply. 
D) alter a central bank's holdings of international reserves. 
A) lead to a decline in domestic interest rates relative to foreign interest rates. 
B) lead to a rise in domestic interest rates relative to foreign interest rates. 
C) lead to a decline in the domestic money supply. 
D) alter a central bank's holdings of international reserves.

Question 14

Throughout most of the post-World War II period, the use of capital controls by governments around the world was declining. But in the late 1990s, a number of governments expressed renewed interest in capital controls. What accounts for this renewed interest?

Accepted Answer

The major currency crises during this pe

Question 15

When a central bank buys foreign assets,

Accepted Answer

A) its holdings of foreign assets rise by the amount of the purchase, but the monetary base is unaffected. 
B) its holdings of foreign assets and the monetary base rise by the amount of the purchase. 
C) its holdings of foreign assets rise by the amount of the purchase, and the monetary base rises by the amount of the purchase times the money multiplier. 
D) the monetary base falls by the amount of the purchase. 
A) its holdings of foreign assets rise by the amount of the purchase, but the monetary base is unaffected. 
B) its holdings of foreign assets and the monetary base rise by the amount of the purchase. 
C) its holdings of foreign assets rise by the amount of the purchase, and the monetary base rises by the amount of the purchase times the money multiplier. 
D) the monetary base falls by the amount of the purchase.

Question 16

If the Fed buys $2 billion of short-term securities issued by the Bank of Japan and pays for them by writing a check for $2 billion,

Accepted Answer

A) its assets will rise by $2 billion and its liabilities will fall by $2 billion. 
B) its assets will fall by $2 billion and its liabilities will rise by $2 billion. 
C) its assets and liabilities will both fall by $2 billion. 
D) its assets and liabilities will both rise by $2 billion. 
A) its assets will rise by $2 billion and its liabilities will fall by $2 billion. 
B) its assets will fall by $2 billion and its liabilities will rise by $2 billion. 
C) its assets and liabilities will both fall by $2 billion. 
D) its assets and liabilities will both rise by $2 billion.

Question 17

Which of the following is NOT included in the current account balance?

Accepted Answer

A) Exports and imports of services 
B) Capital inflows and outflows 
C) Net investment income 
D) Unilateral transfers 
A) Exports and imports of services 
B) Capital inflows and outflows 
C) Net investment income 
D) Unilateral transfers

Question 18

Suppose that Ruritania has a fixed exchange rate versus the U.S. dollar. If foreign investors become convinced that the Ruritanian currency is overvalued, what actions might they take to profit from this conviction? Would these actions make it easier or harder for Ruritania to maintain the value of its currency versus the dollar? Why?

Accepted Answer

Foreign investors will want to sell Ruri

Question 19

The current account balance plus the financial account balance

Accepted Answer

A) equals the trade balance. 
B) equals the net outflow of currency from the domestic economy. 
C) will be negative during economic expansions and positive during economic contractions. 
D) equals zero. 
A) equals the trade balance. 
B) equals the net outflow of currency from the domestic economy. 
C) will be negative during economic expansions and positive during economic contractions. 
D) equals zero.

Question 20

Although coordinated changes in monetary policy are likely to affect the exchange rate,

Accepted Answer

A) it has proven impossible to achieve such coordination among the world's central banks. 
B) sterilized interventions by themselves are unlikely to have a long-term effect on the exchange rate. 
C) they can do so only at the cost of increasing the worldwide inflation rate. 
D) they can do so only at the cost of significantly increasing the chances of worldwide recession. 
A) it has proven impossible to achieve such coordination among the world's central banks. 
B) sterilized interventions by themselves are unlikely to have a long-term effect on the exchange rate. 
C) they can do so only at the cost of increasing the worldwide inflation rate. 
D) they can do so only at the cost of significantly increasing the chances of worldwide recession.

Exam 22: The International Financial System and Monetary Policy

Historically, the leading official reserve asset was

On August 15, 1971, the United States

Under the Bretton Woods system the international reserve currency was the

Explicit capital controls are

An unsterilized foreign-exchange intervention occurs

In the early 2000s, what problem did the Argentine central bank face?

If the U.S. current account balance is positive,

U.S. officials carry out foreign-exchange interventions through

Which of the following will NOT result from an unsterilized intervention in which the central bank sells foreign assets to purchase domestic currency?

The equilibrium exchange rate

The formal name of the World Bank is

If the Fed wants to increase the value of the dollar, it will

Foreign-exchange market interventions will always

Throughout most of the post-World War II period, the use of capital controls by governments around the world was declining. But in the late 1990s, a number of governments expressed renewed interest in capital controls. What accounts for this renewed interest?

When a central bank buys foreign assets,

If the Fed buys $2 billion of short-term securities issued by the Bank of Japan and pays for them by writing a check for $2 billion,

Which of the following is NOT included in the current account balance?

The current account balance plus the financial account balance

Although coordinated changes in monetary policy are likely to affect the exchange rate,

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

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