Exam 20: The International Financial System

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 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.

Under a fixed exchange rate regime,if the domestic currency is initially undervalued,that is,above par,the central bank must intervene to sell the ________ currency by purchasing ________ assets.

The Bretton Woods system broke down in the early 1970s for all but one of the following reasons.

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

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 ________.

Explain an additional disadvantage for a country undergoing dollarization compared to a currency board or other exchange-rate targeting regimes.

Because it provides some indication of what is happening to Canadian claims on foreign wealth and the demand for imports and exports,the ________ is closely followed by economists wanting information on the future movement of exchange rates.

Economists closely follow the current account balance because they believe it can provide information on the future movement of ________.

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

Which of the following appears in the capital account part of the balance of payments?

A capital ________ can promote financial instability in an emerging-market country because it is what forces a country to ________ its currency.

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

The East Asia currency crisis in 1997 started in ________.

The Bretton Woods agreement created the ________,which was given the task of promoting the growth of world trade by setting rules for the maintenance of fixed exchange rates and by making loans to countries that were experiencing balance of payments difficulties.

The account that shows international transactions involving currently produced goods and services is called the ________.

A current account surplus indicates that Canada is ________ its claims on foreign wealth,while a deficit indicates that this country is ________ its claims on foreign wealth.

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

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

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.