Question 1

The exchange rate system followed by the United States is known as

Accepted Answer

A) the gold standard. 
B) a fixed exchange rate system. 
C) a flexible exchange rate system. 
D) a barter system. 
A) the gold standard. 
B) a fixed exchange rate system. 
C) a flexible exchange rate system. 
D) a barter system.

Question 2

If the Fed sterilizes the purchase of foreign assets,

Accepted Answer

A) its assets and liabilities rise by the same amount. 
B) its assets and liabilities fall by the same amount. 
C) the composition of its assets changes, but its liabilities are unaffected. 
D) the composition of its liabilities changes, but its assets are unaffected. 
A) its assets and liabilities rise by the same amount. 
B) its assets and liabilities fall by the same amount. 
C) the composition of its assets changes, but its liabilities are unaffected. 
D) the composition of its liabilities changes, but its assets are unaffected.

Question 3

Under the gold standard, if the demand for U.S. goods increased, which of the following would happen?

Accepted Answer

A) Gold would flow into the United States. 
B) The U.S. monetary base would decline. 
C) Prices in the United States would fall. 
D) The United States would experience a balance of trade deficit. 
A) Gold would flow into the United States. 
B) The U.S. monetary base would decline. 
C) Prices in the United States would fall. 
D) The United States would experience a balance of trade deficit.

Question 4

Currently, the price of gold is

Accepted Answer

A) fixed by the United States. 
B) adjusted periodically by the IMF. 
C) adjusted periodically by the World Bank. 
D) determined in the market by demand and supply. 
A) fixed by the United States. 
B) adjusted periodically by the IMF. 
C) adjusted periodically by the World Bank. 
D) determined in the market by demand and supply.

Question 5

If the Fed sterilizes the purchase of foreign assets,

Accepted Answer

A) the monetary base is left unchanged. 
B) the monetary base rises by the amount of the purchase. 
C) the monetary base falls by the amount of the purchase. 
D) the monetary base may rise, fall, or remain unchanged depending on the reaction of domestic interest rates to the purchase. 
A) the monetary base is left unchanged. 
B) the monetary base rises by the amount of the purchase. 
C) the monetary base falls by the amount of the purchase. 
D) the monetary base may rise, fall, or remain unchanged depending on the reaction of domestic interest rates to the purchase.

Question 6

In 1987, the so-called Louvre Accord

Accepted Answer

A) formally abolished the Bretton Woods system. 
B) established unofficial trading ranges for currencies. 
C) committed the United States to defend a fixed price for gold. 
D) designated the Japanese yen as an official reserve currency. 
A) formally abolished the Bretton Woods system. 
B) established unofficial trading ranges for currencies. 
C) committed the United States to defend a fixed price for gold. 
D) designated the Japanese yen as an official reserve currency.

Question 7

Currently, the dominant reserve currency is the

Accepted Answer

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

Question 8

The Bretton Woods system was expected to be more stable than the gold standard because

Accepted Answer

A) the world supply of gold had increased greatly by the time the Bretton Woods system was established. 
B) large trade deficits and surpluses would be unlikely to occur under the Bretton Woods system. 
C) fewer countries were involved in the Bretton Woods system than had been involved in the gold standard. 
D) the IMF was set up to be a lender of last resort. 
A) the world supply of gold had increased greatly by the time the Bretton Woods system was established. 
B) large trade deficits and surpluses would be unlikely to occur under the Bretton Woods system. 
C) fewer countries were involved in the Bretton Woods system than had been involved in the gold standard. 
D) the IMF was set up to be a lender of last resort.

Question 9

Which of the following statements about a currency risk premium is not true?

Accepted Answer

A) They arise since domestic and foreign assets may be imperfect substitutes. 
B) They arise since investors may have a more difficult time gathering information about foreign assets. 
C) They may arise because foreign assets may be exposed to risks of seizure by foreign governments. 
D) They can only be positive (not negative). 
A) They arise since domestic and foreign assets may be imperfect substitutes. 
B) They arise since investors may have a more difficult time gathering information about foreign assets. 
C) They may arise because foreign assets may be exposed to risks of seizure by foreign governments. 
D) They can only be positive (not negative).

Question 10

The gold standard probably made the Great Depression more severe in the United States because

Accepted Answer

A) the value of gold declined sharply during those years. 
B) the existence of the gold standard kept prices from falling. 
C) the money supply in the United States increased rapidly as gold flowed into the country. 
D) the Fed attempted to reduce gold outflows by raising the discount rate. 
A) the value of gold declined sharply during those years. 
B) the existence of the gold standard kept prices from falling. 
C) the money supply in the United States increased rapidly as gold flowed into the country. 
D) the Fed attempted to reduce gold outflows by raising the discount rate.

Question 11

Why may a central bank intervene in the foreign exchange market when its currency is appreciating?

Accepted Answer

A) Concerns about the country's exports becoming less competitive 
B) Concerns about inflation 
C) Concerns about imports becoming less competitive 
D) To sterilize the effects on the domestic economy 
A) Concerns about the country's exports becoming less competitive 
B) Concerns about inflation 
C) Concerns about imports becoming less competitive 
D) To sterilize the effects on the domestic economy

Question 12

Deliberate actions by a central bank to influence the exchange rate are known as

Accepted Answer

A) current account actions. 
B) foreign-exchange market interventions. 
C) dollar-value operations. 
D) foreign-commerce maneuvers. 
A) current account actions. 
B) foreign-exchange market interventions. 
C) dollar-value operations. 
D) foreign-commerce maneuvers.

Question 13

The fixed exchange rates of the Bretton Woods system were maintained

Accepted Answer

A) by central bank interventions in the foreign-exchange market. 
B) by the requirement that short-term interest rates be equalized in all participating countries. 
C) by the requirement that long-term interest rates be equalized in all participating countries. 
D) through the automatic workings of the foreign-exchange market. 
A) by central bank interventions in the foreign-exchange market. 
B) by the requirement that short-term interest rates be equalized in all participating countries. 
C) by the requirement that long-term interest rates be equalized in all participating countries. 
D) through the automatic workings of the foreign-exchange market.

Question 14

A sterilized intervention will have its greatest effect on

Accepted Answer

A) expected domestic return. 
B) expected foregin return. 
C) It will have no effect on either domestic or foreign return. 
D) It depends on the type of sterilized intervention. 
A) expected domestic return. 
B) expected foregin return. 
C) It will have no effect on either domestic or foreign return. 
D) It depends on the type of sterilized intervention.

Question 15

In the early 2000s, the Argentine government's fiscal policy guaranteed which of the following may take place?

Accepted Answer

A) Default on government debt 
B) Inflationary financing 
C) Both default and inflationary financing 
D) Neither default nor inflationary financing 
A) Default on government debt 
B) Inflationary financing 
C) Both default and inflationary financing 
D) Neither default nor inflationary financing

Question 16

Foreign central banks

Accepted Answer

A) can affect the U.S. money supply, but cannot affect U.S. interest rates. 
B) can affect U.S. interest rates, but cannot affect the U.S. money supply. 
C) cannot affect either U.S. interest rates or the U.S. money supply. 
D) can affect both U.S. interest rates and the U.S. money supply. 
A) can affect the U.S. money supply, but cannot affect U.S. interest rates. 
B) can affect U.S. interest rates, but cannot affect the U.S. money supply. 
C) cannot affect either U.S. interest rates or the U.S. money supply. 
D) can affect both U.S. interest rates and the U.S. money supply.

Question 17

When domestic and foreign assets are imperfect substitutes, an increase in the supply of domestic assets

Accepted Answer

A) implies greater exchange rate risk. 
B) implies lower exchange rate risk. 
C) raises the exchange rate. 
D) implies lower exchange rate risk and raises the exchange rate. 
A) implies greater exchange rate risk. 
B) implies lower exchange rate risk. 
C) raises the exchange rate. 
D) implies lower exchange rate risk and raises the exchange rate.

Question 18

A sterilized intervention will not affect the exchange rate if

Accepted Answer

A) capital controls are in place. 
B) domestic and foreign assets are perfect substitutes. 
C) domestic assets are more liquid than foreign assets. 
D) domestic assets are less liquid than foreign assets. 
A) capital controls are in place. 
B) domestic and foreign assets are perfect substitutes. 
C) domestic assets are more liquid than foreign assets. 
D) domestic assets are less liquid than foreign assets.

Question 19

What was the approximate value of the U.S. current account balance in 2005?

Accepted Answer

A) +$10 billion 
B) +$79 billion 
C) -$480 billion 
D) -$790 billion 
A) +$10 billion 
B) +$79 billion 
C) -$480 billion 
D) -$790 billion

Question 20

If a central bank wishes to raise the foreign-exchange value of its currency, it will

Accepted Answer

A) buy domestic currency and sell foreign assets. 
B) sell domestic currency and buy foreign assets. 
C) attempt to reduce domestic interest rates. 
D) attempt to raise the domestic price level relative to foreign price levels. 
A) buy domestic currency and sell foreign assets. 
B) sell domestic currency and buy foreign assets. 
C) attempt to reduce domestic interest rates. 
D) attempt to raise the domestic price level relative to foreign price levels.

Exam 22: The International Financial System and Monetary Policy

The exchange rate system followed by the United States is known as

If the Fed sterilizes the purchase of foreign assets,

Under the gold standard, if the demand for U.S. goods increased, which of the following would happen?

Currently, the price of gold is

If the Fed sterilizes the purchase of foreign assets,

In 1987, the so-called Louvre Accord

Currently, the dominant reserve currency is the

The Bretton Woods system was expected to be more stable than the gold standard because

Which of the following statements about a currency risk premium is not true?

The gold standard probably made the Great Depression more severe in the United States because

Why may a central bank intervene in the foreign exchange market when its currency is appreciating?

Deliberate actions by a central bank to influence the exchange rate are known as

The fixed exchange rates of the Bretton Woods system were maintained

A sterilized intervention will have its greatest effect on

In the early 2000s, the Argentine government's fiscal policy guaranteed which of the following may take place?

Foreign central banks

When domestic and foreign assets are imperfect substitutes, an increase in the supply of domestic assets

A sterilized intervention will not affect the exchange rate if

What was the approximate value of the U.S. current account balance in 2005?

If a central bank wishes to raise the foreign-exchange value of its currency, it will

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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