Exam 18: The International Financial System

The account that shows international transactions that involve the purchase or sale of assets is called the

Countries with balance of payments deficits do not want to see their currencies ________ because it makes foreign goods ________ expensive for domestic consumers.

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.

An international lender of last resort creates a serious ________ problem because depositors and other creditors of banking institutions expect that they will be protected if a crisis occurs.

In response to the overvalued dollar in the early 1970s,the German Bundesbank bought dollars and sold marks to keep the exchange rate fixed,gaining international reserves. The huge purchase of international reserves meant that the German monetary base began to ________,leading to ________ growth in the German money supply.

Everything else held constant,if a central bank makes an unsterilized ________ of foreign assets,then the domestic money supply will ________ and the domestic currency will depreciate.

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

A capital ________ can promote financial instability in an emerging-market country because it can lead to a lending boom and excessive risk-taking on the part of banks,which helps trigger a ________.

When a domestic currency is completely backed by a foreign currency and the note-issuing authority establishes a fixed exchange rate to this foreign currency,then the country is said to have

Under the Exchange Rate Mechanism of the European Monetary System,when the German mark depreciated below its lower limit against the British pound,the German central bank was required to buy ________ and sell ________,thereby ________ international reserves.

Which of the following is NOT an advantage to exchange-rate targeting?

The monetary policy strategy that provides an automatic rule for the conduct of monetary policy is

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

A central bank ________ of domestic currency and corresponding ________ of foreign assets in the foreign exchange market leads to an equal increase in its international reserves and the monetary base,everything else held constant.

Under a fixed exchange rate regime,if a central bank must intervene to purchase the domestic currency by selling foreign assets,then,like an open market sale,this action ________ the monetary base and the money supply,causing the interest rate on domestic assets to ________.

Under the Exchange Rate Mechanism of the European Monetary System,when the British pound depreciated below its lower limit against the German mark,the Bank of England was required to buy ________ and sell ________,thereby ________ international reserves.

Which of the following does NOT appear in the current account part of the balance of payments?

When the domestic currency is initially overvalued in a fixed exchange rate regime,the central bank must intervene in the foreign exchange market to ________ the domestic currency,thereby allowing the money supply to ________.

Under a fixed exchange rate regime,if a country has an ________ exchange rate,then its central bank's attempt to keep its currency from appreciating will result in a ________ of international reserves.

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.