Exam 6: Government Influence on Exchange Rates

Assume that Japan and the United States frequently trade with each other. Under a freely floating exchange rate system, high inflation in the United States will place ____ pressure on the Japanese yen, ____ the amount of Japanese yen available for sale, and result in ____ inflation in Japan.

In order to stimulate a stagnant economy, a government operating under a managed float may attempt to weaken its currency.

Market forces are the determinant of exchange rates in a freely floating exchange rate system.

As foreign exchange activity has grown, a given degree of central bank intervention has become:

From a financial management perspective, which of the following is true regarding the introduction of the euro?

The Fed may use a stimulative monetary policy with least concern about causing inflation if the dollar's value is expected to:

​When using indirect intervention, a central bank is likely to focus on:

A strong home currency can harm exports; exporters typically benefit from a weaker home country currency.

Direct intervention is usually more effective than indirect intervention.

Which of the following is a disadvantage of a fixed exchange rate system?

​The European Central Bank is located in:

A country with fixed exchange rates often faces constraints on growth.

Assume that the Fed intervenes by exchanging dollars for euros in the foreign exchange market. This will cause an ____ shift in the demand for euros, and will place _____ pressure on the value of the euro.

Assume a central bank exchanges its currency for other foreign currencies in the foreign exchange market, but does not adjust for the resulting change in the money supply. This is an example of:

An advantage of a fixed exchange rate system is that governments are not required to constantly intervene in the foreign exchange market to maintain exchange rates within specified boundaries.

Which of the following is not true regarding the eurozone?

An example of indirect intervention by the Bank of Japan would be for the Bank of Japan to use interest rates to increase the value of the yen versus the dollar.

It has been argued that the exchange rate can be used as a policy tool. Assume that the U.S. government would like to reduce inflation. Which of the following is an appropriate action given this scenario?

Under a fixed exchange rate system:

If a speculator expects that the Fed will intervene heavily by exchanging dollars for Japanese yen in order to affect the exchange rate, she would most likely ____ to capitalize on this intervention.