Exam 19: The International Financial System

Emerging market countries are in effect between a rock and a hard place because ________.

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 Bretton Woods system was one in which central banks ________.

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 a sterilized sale of foreign assets, then the domestic currency will ________.

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.

Critics of the IMF contend that its lending in the ________ crisis, which was used to bail out foreign lenders, set the stage for the ________ crisis because these lenders expected to be bailed out if things went wrong and thus provided funds that were used to fuel excessive risk taking.

Which of the following does not appear in the current account part of the balance of payments?

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

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

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.

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 ________.

A balance of payments ________ is associated with a loss of international reserves, while a balance of payments ________ is associated with a gain.

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.

Under the Bretton Woods system, the United States was designated as the ________.

Under the Bretton Woods system, a country running a balance of payments ________ lost international reserves, and had to implement ________ monetary policy to strengthen its currency.

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.

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

A central bank's attempt to prevent an appreciation of its currency can stimulate domestic inflation if the ________ of its currency leads to ________ international reserves which ________ the monetary base.