Exam 18: The International Financial System

A speculative attack involves massive sales of a ________ currency or purchases of a ________ currency that cause a sharp change in the exchange rate under a ________ exchange rate system.

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

A balance of payments deficit is associated with a ________ of international reserves,while a balance of payments surplus is associated with a ________.

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 appreciate.

Because the United States was the reserve-currency country under the Bretton Woods system,it could run large balance of payments ________ without ________ significant amounts of international reserves.

Under a fixed exchange rate regime,if the domestic currency is initially ________,that is,________ par,the central bank must intervene to purchase the domestic currency by selling foreign assets.

This agency acts like an international lender of last resort to cope with financial instability.

Under a fixed exchange rate regime,if a country's central bank runs out of international reserves,it cannot keep its currency from

The monetary policy strategy that results in the loss of an independent monetary policy is

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.

Everything else held constant,if a central bank makes a sterilized sale of foreign assets,then the domestic currency will

From 1994 to 2005,China chose to have ________ and ________ and therefore,could not have free capital mobility at the same time.

When gold production was low in the 1870s and 1880s,the money supply grew ________ causing ________.

Because many emerging market countries have not developed the political or monetary institutions that allow the successful use of discretionary monetary policy

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

The revenue a government gains from issuing money is

When a country forgoes its own currency and starts using another country's currency as its own,we say that this country has

If the United States has a current account deficit with England of $1 million,and the Bank of England sells $1 million worth of pounds in the foreign exchange market,then England ________ $1 million of international reserves and its monetary base ________ by $1 million.

Exchange-rate targeting allows a central bank to ________,thus this will ________ the probability of policy developing a time-inconsistency problem.

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?