Exam 20: The International Financial System

Under a fixed exchange rate system,countries that ran large,persistent balance of payments deficits would ________ international reserves,thereby pressuring them into ________ their exchange rate.

Which of the following is not a disadvantage of exchange-rate targeting?

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 ________.

A foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called ________.

Explain the 1992 crisis that led to the breakdown of the European Union's Exchange Rate Mechanism.What disadvantages of exchange-rate targeting were exhibited during this crisis?

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.

The revenue a government gains from issuing money is ________.

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

Assume that a fixed exchange rate is overvalued.Describe the situation of a speculative crisis against this currency.What can the central bank do to defend the currency? Why might the alternative of devaluation be preferable?

Explain what is the unsterilized foreign exchange intervention.

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 ________.

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

Explain how an unsterilized purchase of foreign assets impacts the exchange rate everything else held constant.

A case for capital inflow controls can be made because capital inflows ________.

Since the abandonment of the Bretton Woods system,balance of payments considerations have become ________ important,and exchange rate considerations ________ important in the conduct of monetary policy.

Critics of the IMF contend that its lending in the Mexican crisis,which was used to bail out foreign ________,set the stage for the ________ crisis because these ________ expected to be bailed out if things went wrong.

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

What is the gold standard? What are the pros and cons of this system?

Both France and the United Kingdom successfully used exchange-rate targeting to lower inflation in the late 1980s and early 1990s by tying the value of their currencies to the ________.

An ECU was ________.