Question 1

Under the Bretton Woods system, the value of the dollar could be changed

Accepted Answer

A) only by a coordinated realignment of all other currencies. 
B) only if the Fed were willing to buy large amounts of foreign currency. 
C) only if the Fed were willing to sell large amounts of foreign currency. 
D) by adjusting short-term interest rates in the United States. 
A) only by a coordinated realignment of all other currencies. 
B) only if the Fed were willing to buy large amounts of foreign currency. 
C) only if the Fed were willing to sell large amounts of foreign currency. 
D) by adjusting short-term interest rates in the United States.

Question 2

The speculative attack on the German mark in 1971 resulted in

Accepted Answer

A) a large increase in the German monetary base. 
B) a decline in the value of the mark relative to the dollar. 
C) a decision to end the floating of the mark against the dollar. 
D) a large decrease in the German monetary base. 
A) a large increase in the German monetary base. 
B) a decline in the value of the mark relative to the dollar. 
C) a decision to end the floating of the mark against the dollar. 
D) a large decrease in the German monetary base.

Question 3

The main reason central banks engage in foreign-exchange interventions is to

Accepted Answer

A) stabilize the domestic money supply. 
B) stabilize domestic interest rates. 
C) stabilize foreign interest rates. 
D) stabilize the exchange rate. 
A) stabilize the domestic money supply. 
B) stabilize domestic interest rates. 
C) stabilize foreign interest rates. 
D) stabilize the exchange rate.

Question 4

If the U.S. dollar were to cease to be the leading international reserve currency,

Accepted Answer

A) U.S. households and businesses would be unaffected. 
B) U.S. households and businesses would be subject to increased exchange rate risk. 
C) interest rates in the U.S. would be lower. 
D) the U.S. monetary base would contract. 
A) U.S. households and businesses would be unaffected. 
B) U.S. households and businesses would be subject to increased exchange rate risk. 
C) interest rates in the U.S. would be lower. 
D) the U.S. monetary base would contract.

Question 5

Capital controls were imposed in 1998 by

Accepted Answer

A) the United States. 
B) Canada. 
C) Japan. 
D) some emerging economies. 
A) the United States. 
B) Canada. 
C) Japan. 
D) some emerging economies.

Question 6

A sale of foreign assets by a central bank has the same effect on the monetary base as

Accepted Answer

A) a decrease in the discount rate. 
B) a decrease in the required reserve ratio. 
C) an open market sale of government bonds. 
D) an open market purchase of government bonds. 
A) a decrease in the discount rate. 
B) a decrease in the required reserve ratio. 
C) an open market sale of government bonds. 
D) an open market purchase of government bonds.

Question 7

Which of the following was NOT considered to have been a drawback of the pre-1914 gold standard?

Accepted Answer

A) It sometimes led to inflation, which several times in the late nineteenth century caused recessions in the United States. 
B) Countries had little control over their domestic monetary policies. 
C) Countries with trade deficits experienced deflation. 
D) Changes in the world money supply were strongly influenced by gold discoveries. 
A) It sometimes led to inflation, which several times in the late nineteenth century caused recessions in the United States. 
B) Countries had little control over their domestic monetary policies. 
C) Countries with trade deficits experienced deflation. 
D) Changes in the world money supply were strongly influenced by gold discoveries.

Question 8

When a central bank buys 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 9

At the 1976 IMF conference in Jamaica,

Accepted Answer

A) the United States reaffirmed its commitment to buy and sell gold at a fixed price. 
B) currencies were formally allowed to float. 
C) the major countries of the world agreed to continue a system of fixed exchange rates. 
D) the gold standard was reestablished. 
A) the United States reaffirmed its commitment to buy and sell gold at a fixed price. 
B) currencies were formally allowed to float. 
C) the major countries of the world agreed to continue a system of fixed exchange rates. 
D) the gold standard was reestablished.

Question 10

The trade balance is

Accepted Answer

A) by definition, identical to the current account balance. 
B) the difference between merchandise exports and merchandise imports. 
C) almost invariably larger than the financial account balance. 
D) the difference between merchandise exports and merchandise imports and by definition identical to the currency account balance. 
A) by definition, identical to the current account balance. 
B) the difference between merchandise exports and merchandise imports. 
C) almost invariably larger than the financial account balance. 
D) the difference between merchandise exports and merchandise imports and by definition identical to the currency account balance.

Question 11

The official settlement balance

Accepted Answer

A) is an amount that the IMF requires each member country to pay annually. 
B) must by definition always be zero. 
C) equals the current account balance divided by the capital account balance. 
D) equals the net increase in a country's official reserve assets. 
A) is an amount that the IMF requires each member country to pay annually. 
B) must by definition always be zero. 
C) equals the current account balance divided by the capital account balance. 
D) equals the net increase in a country's official reserve assets.

Question 12

When someone in a country buys an asset abroad, the transaction is recorded

Accepted Answer

A) in the current account. 
B) in the official settlements balance. 
C) in the capital account as a capital inflow. 
D) in the capital account as a capital outflow. 
A) in the current account. 
B) in the official settlements balance. 
C) in the capital account as a capital inflow. 
D) in the capital account as a capital outflow.

Question 13

If the central bank buys foreign assets,

Accepted Answer

A) the expected rate of return on domestic assets will fall relative to the expected rate of return on foreign assets. 
B) the expected rate of return on domestic assets will rise relative to the expected rate of return on foreign assets. 
C) the domestic monetary base will decline. 
D) the foreign-exchange value of the domestic currency will rise. 
A) the expected rate of return on domestic assets will fall relative to the expected rate of return on foreign assets. 
B) the expected rate of return on domestic assets will rise relative to the expected rate of return on foreign assets. 
C) the domestic monetary base will decline. 
D) the foreign-exchange value of the domestic currency will rise.

Question 14

If the Fed conducts an open market sale to increase domestic interest rates, what is likely to occur in the foreign exchange market?

Accepted Answer

A) The dollar will depreciate. 
B) The dollar will appreciate. 
C) Foreign assets become more attractive. 
D) Domestic assets become less attractive. 
A) The dollar will depreciate. 
B) The dollar will appreciate. 
C) Foreign assets become more attractive. 
D) Domestic assets become less attractive.

Question 15

A central bank may be reluctant to see its currency appreciate because

Accepted Answer

A) rising prices of imports will contribute to inflation. 
B) falling prices of exports will contribute to inflation. 
C) the country's goods may become uncompetitive in world markets. 
D) the country's monetary base will increase. 
A) rising prices of imports will contribute to inflation. 
B) falling prices of exports will contribute to inflation. 
C) the country's goods may become uncompetitive in world markets. 
D) the country's monetary base will increase.

Question 16

Fixed exchange rate regimes

Accepted Answer

A) existed prior to the nineteenth century but were then superseded by the gold standard. 
B) lower the transactions costs of buying and selling goods and assets. 
C) result in higher world interest rates. 
D) were first established by the GATT in 1971. 
A) existed prior to the nineteenth century but were then superseded by the gold standard. 
B) lower the transactions costs of buying and selling goods and assets. 
C) result in higher world interest rates. 
D) were first established by the GATT in 1971.

Question 17

Under the Bretton Woods system, exchange rates were supposed to be adjusted

Accepted Answer

A) only when a country experienced fundamental disequilibrium. 
B) daily. 
C) weekly. 
D) following each annual meeting of the board of governors of the International Monetary Fund. 
A) only when a country experienced fundamental disequilibrium. 
B) daily. 
C) weekly. 
D) following each annual meeting of the board of governors of the International Monetary Fund.

Question 18

Special Drawing Rights

Accepted Answer

A) are granted by the Fed to banks which want to trade in the foreign exchange markets. 
B) were eliminated when the Bretton Woods system broke down. 
C) are created by the IMF in its role as lender of last resort. 
D) were created by the Nixon administration on August 15, 1971. 
A) are granted by the Fed to banks which want to trade in the foreign exchange markets. 
B) were eliminated when the Bretton Woods system broke down. 
C) are created by the IMF in its role as lender of last resort. 
D) were created by the Nixon administration on August 15, 1971.

Question 19

In 2005, the financial account balance was approximately

Accepted Answer

A) $780 billion. 
B) -$790 billion. 
C) $425 billion. 
D) $780 million. 
A) $780 billion. 
B) -$790 billion. 
C) $425 billion. 
D) $780 million.

Question 20

During the 1980s, the Reagan administration intervened in foreign-exchange markets

Accepted Answer

A) when directly required to do so by the International Monetary Fund. 
B) only to raise the foreign-exchange value of the dollar. 
C) only to lower the foreign-exchange value of the dollar. 
D) both to lower and raise the foreign-exchange value of the dollar. 
A) when directly required to do so by the International Monetary Fund. 
B) only to raise the foreign-exchange value of the dollar. 
C) only to lower the foreign-exchange value of the dollar. 
D) both to lower and raise the foreign-exchange value of the dollar.

Exam 22: The International Financial System and Monetary Policy

Under the Bretton Woods system, the value of the dollar could be changed

The speculative attack on the German mark in 1971 resulted in

The main reason central banks engage in foreign-exchange interventions is to

If the U.S. dollar were to cease to be the leading international reserve currency,

Capital controls were imposed in 1998 by

A sale of foreign assets by a central bank has the same effect on the monetary base as

Which of the following was NOT considered to have been a drawback of the pre-1914 gold standard?

When a central bank buys foreign assets,

At the 1976 IMF conference in Jamaica,

The trade balance is

The official settlement balance

When someone in a country buys an asset abroad, the transaction is recorded

If the central bank buys foreign assets,

If the Fed conducts an open market sale to increase domestic interest rates, what is likely to occur in the foreign exchange market?

A central bank may be reluctant to see its currency appreciate because

Fixed exchange rate regimes

Under the Bretton Woods system, exchange rates were supposed to be adjusted

Special Drawing Rights

In 2005, the financial account balance was approximately

During the 1980s, the Reagan administration intervened in foreign-exchange markets

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

Filters