Exam 18: The International Financial System

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

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

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.

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

Under the Bretton Woods system,the IMF could encourage ________ countries to pursue ________ monetary policies that would strengthen their currency or eliminate their balance of payment deficits.

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

To maintain fixed exchange rates when countries had balance of payments deficits and were losing international reserves,the ________ would loan ________ countries international reserves contributed by other members.

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 the Bretton Woods system,the organization assigned the task of making loans to countries that were experiencing balance of payments difficulties is known as the

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

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

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.

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 current managed float exchange rate regime,countries with balance of payments deficits frequently do not want to see their currencies depreciate because it makes ________ goods more expensive for ________ consumers and can stimulate inflation.

Under the current managed float exchange rate regime; countries with surpluses in their balance of payments frequently do not want to see their currencies appreciate because it makes their goods ________ expensive abroad and foreign goods ________ in their countries.

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

An advantage to exchange-rate targeting is it helps keep inflation under control by tying the inflation rate for ________ traded goods to what is found in the ________ country.

An ECU was

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

The account that shows international transactions involving financial transactions (stocks,bonds,bank loans,etc.)is called the