Exam 20: The International Financial System

Under a fixed exchange rate regime,if a central bank must intervene to purchase the ________ currency by selling ________ assets,then,like an open market sale,this action reduces the monetary base and the money supply,causing the interest rate on domestic assets to rise.

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.

As a result of its power to dictate loan terms to borrowing countries (under the Bretton Woods system),the IMF could encourage ________ countries to pursue ________ monetary policies that would strengthen their currency or eliminate their balance of payments deficits.