Exam 20: The International Financial System

What is the current account? Why does the current account receive so much attention from economists?

The Bretton Woods system was one in which central banks ________.

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

In the 1990s,this agency has acted like an international lender of last resort to cope with financial instability.

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.

Suppose that the Bank of Japan buys Canadian dollar assets with yen-denominated assets.Everything else held constant,this transaction will cause ________ in the foreign assets held by the Bank of Canada and ________ in the Canadian monetary base.

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.

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

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

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.

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

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.

The current international financial system is a managed float exchange rate system because ________.

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.

A weakness of the Bretton Woods system was that the ________ had no way to force surplus countries to either revalue their exchange rates upwards or pursue more expansionary policies.

The monetary policy strategy that does not allow the policy to focus on domestic considerations is ________.

The seignorage for a government is greater for ________ than for ________.

A current account deficit implies that ________.

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.