Exam 18: The International Financial System

A central bank's attempt to prevent an appreciation of its currency can stimulate domestic inflation if the ________ of its currency leads to ________ international reserves which ________ the monetary base.

A monetary policy strategy that uses a fixed exchange rate regime that ties the value of a currency to the currency of a large,low inflation country is called ________ targeting.

Because it provides some indication of what is happening to U.S.claims on foreign wealth and the demand for imports and exports,the ________ is closely followed by economists wanting information on the future movement of exchange rates.

Explain and demonstrate graphically the situation of an overvalued exchange rate in a fixed exchange rate system.What alternative policies are available to eliminate the overvaluation of the exchange rate?

Under a fixed exchange rate regime,a country that depletes its international reserves in an attempt to keep its currency from ________ will be forced to ________ its currency.

In September 1992,the Bundesbank attempted to keep the mark from appreciating relative to the British pound,but it failed because participants in the foreign exchange market came to expect the

If a central bank does not want to allow the domestic currency to depreciate,it will ________ international reserves by purchasing its currency,thereby ________ the monetary base and increasing the risk of higher unemployment.

Policymakers in a country with a balance of payments surplus may not want to see their country's currency appreciate because this would

In the 1990s this agency has acted like an international lender of last resort to cope with financial instability.

Which of the following is not a disadvantage of exchange-rate targeting?

Under the Bretton Woods system,a country running a balance of payments deficit ________ international reserves,and had to implement ________ monetary policy to strengthen its currency.

As a result of its power to dictate loan terms to borrowing countries (under the Bretton Woods system),the IMF could encourage ________ countries to pursue ________ monetary policies that would strengthen their currency or eliminate their balance of payments deficits.

If a central bank does not want to see its currency rise in value,it may pursue ________ monetary policy to ________ the domestic interest rate,thereby weakening its currency.

The East Asia currency crisis in 1997 started in

Under the Bretton Woods system,a country running a balance of payments surplus ________ international reserves,and had to implement ________ monetary policy to weaken its currency.