Question 1

The International Monetary Fund was created as a part of:

Accepted Answer

A) the United Nations. 
B) the Bretton Woods System. 
C) the European Monetary Union. 
D) the Federal Reserve System. 
A) the United Nations. 
B) the Bretton Woods System. 
C) the European Monetary Union. 
D) the Federal Reserve System.

Question 2

What are the pros and cons of a currency board?

Accepted Answer

With a currency board, the central bank'

Question 3

When Argentina fixed the exchange rate of their peso to the U.S.dollar, one outcome was:

Accepted Answer

A) Argentinean central bankers regained control of their domestic interest rate. 
B) Argentinean central bankers were finally able to focus their attention on domestic monetary policy. 
C) Argentinean central bankers effectively gave control of their domestic interest rate to the FOMC. 
D) Argentineans began using the U.S.dollar for all of their transactions. 
A) Argentinean central bankers regained control of their domestic interest rate. 
B) Argentinean central bankers were finally able to focus their attention on domestic monetary policy. 
C) Argentinean central bankers effectively gave control of their domestic interest rate to the FOMC. 
D) Argentineans began using the U.S.dollar for all of their transactions.

Question 4

What makes countries with fixed exchange rates prone to speculative attacks? Why don't the central banks of these countries stop these attacks?

Accepted Answer

In order to maintain a fixed exchange ra

Question 5

A U.S.resident purchases a bond issued by the Canadian government.If the Canadian dollar appreciates relative to the U.S.dollar over the term of the bond, the U.S.investor will:

Accepted Answer

A) see a higher return on her investment as a result. 
B) see a lower return on her investment as a result. 
C) not see her return affected since exchange rates are flexible. 
D) none of the answers provided is correct. 
A) see a higher return on her investment as a result. 
B) see a lower return on her investment as a result. 
C) not see her return affected since exchange rates are flexible. 
D) none of the answers provided is correct.

Question 6

Fixed exchange rate regimes include each of the following, except:

Accepted Answer

A) the Bretton Woods exchange rate system. 
B) exchange rate pegs. 
C) dollarization. 
D) currency boards. 
A) the Bretton Woods exchange rate system. 
B) exchange rate pegs. 
C) dollarization. 
D) currency boards.

Question 7

When arbitrage occurs across countries with flexible exchange rates and when the bonds in each country are identical and there are no barriers to capital flows:

Accepted Answer

A) the interest rates on the bonds will be identical. 
B) the prices of the bonds will be identical. 
C) the inflation rates in each country will be identical. 
D) none of the answers provided is correct. 
A) the interest rates on the bonds will be identical. 
B) the prices of the bonds will be identical. 
C) the inflation rates in each country will be identical. 
D) none of the answers provided is correct.

Question 8

If the Fed decides to control the euro/dollar exchange rate:

Accepted Answer

A) they will also have to control the domestic interest rate. 
B) they will have to control the amount of banking system reserves. 
C) the market will determine the interest rate. 
D) they will have to control the domestic rate of inflation or it won't work. 
A) they will also have to control the domestic interest rate. 
B) they will have to control the amount of banking system reserves. 
C) the market will determine the interest rate. 
D) they will have to control the domestic rate of inflation or it won't work.

Question 9

Which of the following statements best completes the following sentence; "Prior to World War I, when the U.S.was on the gold standard, inflation in the U.S.…"?

Accepted Answer

A) averaged 3.5 percent per year but was highly variable. 
B) averaged less than one percent per year and was highly variable. 
C) averaged less than one percent per year and was stable. 
D) averaged 3.5 percent per year and was stable. 
A) averaged 3.5 percent per year but was highly variable. 
B) averaged less than one percent per year and was highly variable. 
C) averaged less than one percent per year and was stable. 
D) averaged 3.5 percent per year and was stable.

Question 10

If capital flows freely between countries and a country has a fixed exchange rate, one thing you know is that the country:

Accepted Answer

A) exports more than it imports. 
B) must have ample gold reserves. 
C) cannot have a discretionary monetary policy. 
D) must be running large trade deficits 
A) exports more than it imports. 
B) must have ample gold reserves. 
C) cannot have a discretionary monetary policy. 
D) must be running large trade deficits

Question 11

A sterilized foreign exchange intervention would:

Accepted Answer

A) alter the asset side of a central bank's balance sheet but leave the domestic monetary base unchanged. 
B) alter the liability side of the central bank's balance sheet but leave the asset side unchanged. 
C) leave the central bank's balance sheet unchanged. 
D) not alter the central bank's holdings of international reserves. 
A) alter the asset side of a central bank's balance sheet but leave the domestic monetary base unchanged. 
B) alter the liability side of the central bank's balance sheet but leave the asset side unchanged. 
C) leave the central bank's balance sheet unchanged. 
D) not alter the central bank's holdings of international reserves.

Question 12

If the Fed were to purchase euros for dollars and at the same time sell U.S.Treasury securities in the open market, this would be an example of:

Accepted Answer

A) an unsterilized foreign exchange intervention. 
B) the Fed not changing their balance sheet at all. 
C) a sterilized foreign exchange intervention. 
D) the Fed altering the domestic monetary base. 
A) an unsterilized foreign exchange intervention. 
B) the Fed not changing their balance sheet at all. 
C) a sterilized foreign exchange intervention. 
D) the Fed altering the domestic monetary base.

Question 13

Within the United States, every city has:

Accepted Answer

A) a fixed exchange rate with every other city. 
B) a floating exchange rate with every other city. 
C) an independent monetary policy. 
D) their own currency board. 
A) a fixed exchange rate with every other city. 
B) a floating exchange rate with every other city. 
C) an independent monetary policy. 
D) their own currency board.

Question 14

When arbitrage occurs across countries with a flexible exchange rate and when the bonds in each country are identical and there are no barriers to capital flows then the:

Accepted Answer

A) interest rates on the bonds will be identical. 
B) expected return on the bonds will be identical. 
C) inflation rates in each country will be identical. 
D) prices of the bonds will be identical. 
A) interest rates on the bonds will be identical. 
B) expected return on the bonds will be identical. 
C) inflation rates in each country will be identical. 
D) prices of the bonds will be identical.

Question 15

A foreign exchange intervention that alters the domestic monetary base is:

Accepted Answer

A) sterilized. 
B) unsterilized. 
C) not likely to change domestic interest rates. 
D) impossible. 
A) sterilized. 
B) unsterilized. 
C) not likely to change domestic interest rates. 
D) impossible.

Question 16

You are an American resident but have invested in a German bond (paying face value) that matures in two years, pays a 5 percent interest rate and is denominated in euros.What could cause your rate of return to fall below 5 percent even though the bond pays off at maturity?

Accepted Answer

The exchange rate at the time the bond m

Question 17

A problem with currency boards is that the central bank loses:

Accepted Answer

A) control over the government budget. 
B) a flexible exchange rate is always preferred to a pegged exchange rate. 
C) influence over interest rates. 
D) the ability to supervise banks. 
A) control over the government budget. 
B) a flexible exchange rate is always preferred to a pegged exchange rate. 
C) influence over interest rates. 
D) the ability to supervise banks.

Question 18

If the inflation rate in country A is 3.5% and the inflation rate in country B is 3.0%, we should expect the percentage change in the number of units of country A's currency per unit of country B's currency to be:

Accepted Answer

A) +0.5%. 
B) -0.5%. 
C) +16.7%. 
D) +6.5%. 
A) +0.5%. 
B) -0.5%. 
C) +16.7%. 
D) +6.5%.

Question 19

Assume that the Fed performs a foreign exchange intervention in which it does nothing except buy German government bonds.One result of this will be that:

Accepted Answer

A) the dollar depreciates. 
B) the euro depreciates. 
C) both the dollar and the euro depreciate. 
D) the dollar appreciates and the euro depreciates. 
A) the dollar depreciates. 
B) the euro depreciates. 
C) both the dollar and the euro depreciate. 
D) the dollar appreciates and the euro depreciates.

Question 20

A fixed exchange rate policy:

Accepted Answer

A) decreases central bank policy accountability and transparency. 
B) strengthens domestic interest rate policy. 
C) will likely make domestic inflation more volatile. 
D) imports monetary policy. 
A) decreases central bank policy accountability and transparency. 
B) strengthens domestic interest rate policy. 
C) will likely make domestic inflation more volatile. 
D) imports monetary policy.

Exam 19: Exchange-Rate Policy and the Central Bank

The International Monetary Fund was created as a part of:

What are the pros and cons of a currency board?

When Argentina fixed the exchange rate of their peso to the U.S.dollar, one outcome was:

What makes countries with fixed exchange rates prone to speculative attacks? Why don't the central banks of these countries stop these attacks?

A U.S.resident purchases a bond issued by the Canadian government.If the Canadian dollar appreciates relative to the U.S.dollar over the term of the bond, the U.S.investor will:

Fixed exchange rate regimes include each of the following, except:

When arbitrage occurs across countries with flexible exchange rates and when the bonds in each country are identical and there are no barriers to capital flows:

If the Fed decides to control the euro/dollar exchange rate:

Which of the following statements best completes the following sentence; "Prior to World War I, when the U.S.was on the gold standard, inflation in the U.S.…"?

If capital flows freely between countries and a country has a fixed exchange rate, one thing you know is that the country:

A sterilized foreign exchange intervention would:

If the Fed were to purchase euros for dollars and at the same time sell U.S.Treasury securities in the open market, this would be an example of:

Within the United States, every city has:

When arbitrage occurs across countries with a flexible exchange rate and when the bonds in each country are identical and there are no barriers to capital flows then the:

A foreign exchange intervention that alters the domestic monetary base is:

You are an American resident but have invested in a German bond (paying face value) that matures in two years, pays a 5 percent interest rate and is denominated in euros.What could cause your rate of return to fall below 5 percent even though the bond pays off at maturity?

A problem with currency boards is that the central bank loses:

If the inflation rate in country A is 3.5% and the inflation rate in country B is 3.0%, we should expect the percentage change in the number of units of country A's currency per unit of country B's currency to be:

Assume that the Fed performs a foreign exchange intervention in which it does nothing except buy German government bonds.One result of this will be that:

A fixed exchange rate policy:

An Introduction to Money and the Financial System

Money and the Payments System

Financial Instruments, Financial Markets, and Financial Institutions

Future Value, Present Value, and Interest Rates

Understanding Risk

Bonds, Bond Prices, and the Determination of Interest Rates

The Risk and Term Structure of Interest Rates

Stocks, Stock Markets, and Market Efficiency

Derivatives: Futures, Options, and Swaps

Foreign Exchange

The Economics of Financial Intermediation

Depository Institutions: Banks and Bank Management

Financial Industry Structure

Regulating the Financial System

Central Banks in the World Today

The Structure of Central Banks: The Federal Reserve and the European Central Bank

The Central Bank Balance Sheet and the Money Supply Process

Monetary Policy: Stabilizing the Domestic Economy

Money Growth, Money Demand, and Modern Monetary Policy

Output, Inflation, and Monetary Policy

Understanding Business Cycle Fluctuations

Modern Monetary Policy and the Challenges Facing Central Bankers

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