Exam 20: Government Policies Toward the Foreign Exchange Market

Consider that Britain is trying to maintain a fixed exchange rate with respect to the U.S. dollar. However, the present situation in the foreign exchange market is conducive for the British pound to depreciate with respect to the U.S. dollar. If the British government intervenes in the foreign exchange market, then it can be inferred that:

Which of the following statements is NOT accurate?

An exchange rate regime in which the government intervenes in the market to influence the market-determined exchange rate can be called either a dirty float or a managed float.

Consider that Britain is trying to maintain a fixed exchange rate with respect to the U.S. dollar. However, the present situation in the foreign exchange market is conducive for the British pound to depreciate with respect to the U.S. dollar. If the British government uses sterilized intervention in the foreign exchange market, then:

With respect to exchange rates, the 1997 Asian currency crisis caused the Thai, Malaysian, Indonesian, and Korean governments to give up their pegged or heavily managed exchange rates and move to floating exchange rates.

An exchange rate regime in which the government may change the fixed rate in the face of a significant disequilibrium in the country's international position is called a(n):

Action to reverse the effect of official intervention on the domestic money supply is called:

For a country with a fixed exchange rate that is running continuous overall payments surpluses:

Describe the Bretton Woods exchange rate system and explain how it fell apart.

One disadvantage of the pre-1914 gold standard was that:

Exchange controls used by a country's government to maintain an overvalued exchange rate result in considerable costs to the country. Explain the situation with a diagram and use it to show the deadweight loss. Describe the role that bribery and parallel markets can play in economies with exchange controls.

If a country with a fixed exchange rate is continuously losing foreign reserves, speculators will:

Which of the following is true of capital controls?

If a country's currency is a reserve currency, then intervention in the foreign exchange market to maintain a pegged exchange rate is unnecessary.

The exchange-rate mechanism (ERM) crisis occurred because exchange controls were not adjusted frequently enough.

A country with a fixed exchange rate experiences upward pressure on the exchange rate value of its currency. The central bank chooses to intervene in the market to maintain its fixed exchange rate. How would the central bank go about intervening? If the pressures for the currency to appreciate persist, would it be difficult to maintain the fixed exchange rate? Why or why not? Would your answers differ if the country carried out sterilized intervention? Why or why not. Give an example of a country that attempted to maintain their exchange rate in the face of upward pressures on their currency value. What was the result?

Which of the following terms is used to describe an exchange rate regime in which the rate is fixed to a currency or basket of currencies?

The central feature of the Bretton Woods system was:

With a(n) _____, the government allows the market to determine the exchange rate of a currency.

Which of the following are in place when government imposes limits on or requires approvals for payments related to some (or all) international financial activities?