Question 1

Why has the IMF come in for widespread criticism for its handling of the Asian financial crisis?

Accepted Answer

A) It refused to make loans to any of the countries whose currencies were under speculative attack. 
B) Its policies did not sufficiently punish speculators with losses, giving rise to moral hazard. 
C) Its policies led to unsustainably low interest rates in a number of Asian countries. 
D) Its policies failed to lead to sufficient hardship for citizens in a number of Asian countries, giving rise to moral hazard. 
A) It refused to make loans to any of the countries whose currencies were under speculative attack. 
B) Its policies did not sufficiently punish speculators with losses, giving rise to moral hazard. 
C) Its policies led to unsustainably low interest rates in a number of Asian countries. 
D) Its policies failed to lead to sufficient hardship for citizens in a number of Asian countries, giving rise to moral hazard.

Question 2

When the Fed sells foreign assets and buy domestic assets at the same time,

Accepted Answer

A) its assets and liabilities rise by the same amount. 
B) its assets and liabilities fall by the same amount. 
C) the composition of its assets changes, but its liabilities are unaffected. 
D) the composition of its liabilities changes, but its assets are unaffected. 
A) its assets and liabilities rise by the same amount. 
B) its assets and liabilities fall by the same amount. 
C) the composition of its assets changes, but its liabilities are unaffected. 
D) the composition of its liabilities changes, but its assets are unaffected.

Question 3

Historically, the leading official reserve asset was

Accepted Answer

A) gold. 
B) the U.S. dollar. 
C) the British pound. 
D) the German mark. 
A) gold. 
B) the U.S. dollar. 
C) the British pound. 
D) the German mark.

Question 4

All of the following accurately describes China's currency peg EXCEPT

Accepted Answer

A) pegging against the dollar ensured that Chinese exporters faced stable prices on exports to the U.S. 
B) some U.S. firms complained that the peg gave Chinese firms an unfair advantage over U.S. firms. 
C) the Chinese currency was allowed to depreciate moderately in the years preceding the financial crisis. 
D) many economists argued that the Chinese currency was undervalued. 
A) pegging against the dollar ensured that Chinese exporters faced stable prices on exports to the U.S. 
B) some U.S. firms complained that the peg gave Chinese firms an unfair advantage over U.S. firms. 
C) the Chinese currency was allowed to depreciate moderately in the years preceding the financial crisis. 
D) many economists argued that the Chinese currency was undervalued.

Question 5

How does a sterilized intervention by the Fed in foreign exchange market differ from an unsterilized intervention?

Accepted Answer

Unlike an unsterilized interve

Question 6

Under the Bretton Woods system, an asymmetry in the ability of central banks to defend their exchange rates existed because

Accepted Answer

A) a country experiencing a balance of payments surplus was limited in its ability to defend its exchange rate by its stock of international reserves. 
B) a country experiencing a balance of payments deficit was limited in its ability to defend its exchange rate by its stock of international reserves. 
C) central banks were allowed by the IMF to adjust their exchange rates upward whenever they chose, but were rarely allowed to adjust their exchange rates downward. 
D) central banks were allowed by the IMF to adjust their exchange rates downward whenever they chose, but were rarely allowed to adjust their exchange rates upward. 
A) a country experiencing a balance of payments surplus was limited in its ability to defend its exchange rate by its stock of international reserves. 
B) a country experiencing a balance of payments deficit was limited in its ability to defend its exchange rate by its stock of international reserves. 
C) central banks were allowed by the IMF to adjust their exchange rates upward whenever they chose, but were rarely allowed to adjust their exchange rates downward. 
D) central banks were allowed by the IMF to adjust their exchange rates downward whenever they chose, but were rarely allowed to adjust their exchange rates upward.

Question 7

Fixed exchange rate regimes

Accepted Answer

A) existed prior to the nineteenth century but were then superseded by the gold standard. 
B) lower the transactions costs of buying and selling goods and assets. 
C) result in higher world interest rates. 
D) were first established by the GATT in 1971. 
A) existed prior to the nineteenth century but were then superseded by the gold standard. 
B) lower the transactions costs of buying and selling goods and assets. 
C) result in higher world interest rates. 
D) were first established by the GATT in 1971.

Question 8

A sale of foreign assets by a central bank has the same effect on the monetary base as

Accepted Answer

A) a decrease in the discount rate. 
B) a decrease in the required reserve ratio. 
C) an open market sale of government bonds. 
D) an open market purchase of government bonds. 
A) a decrease in the discount rate. 
B) a decrease in the required reserve ratio. 
C) an open market sale of government bonds. 
D) an open market purchase of government bonds.

Question 9

At the time monetary union in Europe began in 1999, which of the following countries declined to participate?

Accepted Answer

A) France 
B) United Kingdom 
C) Italy 
D) Germany 
A) France 
B) United Kingdom 
C) Italy 
D) Germany

Question 10

Currently, the price of gold is

Accepted Answer

A) fixed by the United States. 
B) adjusted periodically by the IMF. 
C) adjusted periodically by the World Bank. 
D) determined in the market by demand and supply. 
A) fixed by the United States. 
B) adjusted periodically by the IMF. 
C) adjusted periodically by the World Bank. 
D) determined in the market by demand and supply.

Question 11

When a central bank buys foreign assets,

Accepted Answer

A) its assets and liabilities rise by the same amount. 
B) its assets and liabilities fall by the same amount. 
C) the composition of its assets changes, but its liabilities are unaffected. 
D) the composition of its liabilities changes, but its assets are unaffected. 
A) its assets and liabilities rise by the same amount. 
B) its assets and liabilities fall by the same amount. 
C) the composition of its assets changes, but its liabilities are unaffected. 
D) the composition of its liabilities changes, but its assets are unaffected.

Question 12

Why do restrictions on capital inflows receive more support from some economists than restrictions of capital outflows?

Accepted Answer

Restrictions on capital inflows receive

Question 13

How did the use of the euro limit the use of monetary policy by European nations severely affected by the Financial Crisis of 2007-2009?

Accepted Answer

Before the euro, the central banks of th

Question 14

If the Fed sterilizes the purchase of foreign assets,

Accepted Answer

A) the monetary base is left unchanged. 
B) the monetary base rises by the amount of the purchase. 
C) the monetary base falls by the amount of the purchase. 
D) the monetary base may rise, fall, or remain unchanged depending on the reaction of domestic interest rates to the purchase. 
A) the monetary base is left unchanged. 
B) the monetary base rises by the amount of the purchase. 
C) the monetary base falls by the amount of the purchase. 
D) the monetary base may rise, fall, or remain unchanged depending on the reaction of domestic interest rates to the purchase.

Question 15

Special Drawing Rights

Accepted Answer

A) are granted by the Fed to banks which want to trade in the foreign exchange markets. 
B) were eliminated when the Bretton Woods system broke down. 
C) are created by the IMF in its role as lender of last resort. 
D) were created by the Nixon administration on August 15, 1971. 
A) are granted by the Fed to banks which want to trade in the foreign exchange markets. 
B) were eliminated when the Bretton Woods system broke down. 
C) are created by the IMF in its role as lender of last resort. 
D) were created by the Nixon administration on August 15, 1971.

Question 16

If the Fed wants to reduce the value of the dollar, it will

Accepted Answer

A) sell foreign assets and buy dollars. 
B) sell dollars and buy foreign assets. 
C) buy foreign assets and also buy dollars. 
D) sell foreign assets and also sell dollars. 
A) sell foreign assets and buy dollars. 
B) sell dollars and buy foreign assets. 
C) buy foreign assets and also buy dollars. 
D) sell foreign assets and also sell dollars.

Question 17

What was the approximate value of the U.S. current account balance in 2011?

Accepted Answer

A) +$10 billion 
B) +$79 billion 
C) -$380 billion 
D) -$475 billion 
A) +$10 billion 
B) +$79 billion 
C) -$380 billion 
D) -$475 billion

Question 18

How can a country with a fixed nominal exchange rate, such as Greece, experience a lower real exchange rate?

Accepted Answer

A) by experiencing higher inflation than its partners 
B) by experiencing deflation if its partners have low inflation rates 
C) by limiting the growth of productivity 
D) by increasing wages at a faster rate than inflation 
A) by experiencing higher inflation than its partners 
B) by experiencing deflation if its partners have low inflation rates 
C) by limiting the growth of productivity 
D) by increasing wages at a faster rate than inflation

Question 19

In what sense does the IMF act as a lender of last resort? How might the IMF's actions during the Mexican crisis of the mid-1990s have contributed to the Asian currency crisis a few years later?

Accepted Answer

The IMF acts as an international lender

Question 20

Why may a central bank intervene in the foreign exchange market when its currency is appreciating?

Accepted Answer

A) concerns about the country's exports becoming less competitive 
B) concerns about inflation 
C) concerns about imports becoming less competitive 
D) to sterilize the effects on the domestic economy 
A) concerns about the country's exports becoming less competitive 
B) concerns about inflation 
C) concerns about imports becoming less competitive 
D) to sterilize the effects on the domestic economy

Why has the IMF come in for widespread criticism for its handling of the Asian financial crisis?

When the Fed sells foreign assets and buy domestic assets at the same time,

Historically, the leading official reserve asset was

All of the following accurately describes China's currency peg EXCEPT

How does a sterilized intervention by the Fed in foreign exchange market differ from an unsterilized intervention?

Under the Bretton Woods system, an asymmetry in the ability of central banks to defend their exchange rates existed because

Fixed exchange rate regimes

A sale of foreign assets by a central bank has the same effect on the monetary base as

At the time monetary union in Europe began in 1999, which of the following countries declined to participate?

Currently, the price of gold is

When a central bank buys foreign assets,

Why do restrictions on capital inflows receive more support from some economists than restrictions of capital outflows?

How did the use of the euro limit the use of monetary policy by European nations severely affected by the Financial Crisis of 2007-2009?

If the Fed sterilizes the purchase of foreign assets,

Special Drawing Rights

If the Fed wants to reduce the value of the dollar, it will

What was the approximate value of the U.S. current account balance in 2011?

How can a country with a fixed nominal exchange rate, such as Greece, experience a lower real exchange rate?

In what sense does the IMF act as a lender of last resort? How might the IMF's actions during the Mexican crisis of the mid-1990s have contributed to the Asian currency crisis a few years later?

Why may a central bank intervene in the foreign exchange market when its currency is appreciating?

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, Information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, Asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

Monetary Theory I: The Aggregate Demand and Aggregate Supply Model

Monetary Theory II: The IS-MP Model

Filters

Exam 16: The International Financial System and Monetary Policy

Why has the IMF come in for widespread criticism for its handling of the Asian financial crisis?

When the Fed sells foreign assets and buy domestic assets at the same time,

Historically, the leading official reserve asset was

All of the following accurately describes China's currency peg EXCEPT

How does a sterilized intervention by the Fed in foreign exchange market differ from an unsterilized intervention?

Under the Bretton Woods system, an asymmetry in the ability of central banks to defend their exchange rates existed because

Fixed exchange rate regimes

A sale of foreign assets by a central bank has the same effect on the monetary base as

At the time monetary union in Europe began in 1999, which of the following countries declined to participate?

Currently, the price of gold is

When a central bank buys foreign assets,

Why do restrictions on capital inflows receive more support from some economists than restrictions of capital outflows?

How did the use of the euro limit the use of monetary policy by European nations severely affected by the Financial Crisis of 2007-2009?

If the Fed sterilizes the purchase of foreign assets,

Special Drawing Rights

If the Fed wants to reduce the value of the dollar, it will

What was the approximate value of the U.S. current account balance in 2011?

How can a country with a fixed nominal exchange rate, such as Greece, experience a lower real exchange rate?

In what sense does the IMF act as a lender of last resort? How might the IMF's actions during the Mexican crisis of the mid-1990s have contributed to the Asian currency crisis a few years later?

Why may a central bank intervene in the foreign exchange market when its currency is appreciating?

Introducing Money and the Financial System

Money and the Payments System

Interest Rates and Rates of Return

Determining Interest Rates

The Risk Structure and Term Structure of Interest Rates

The Stock Market, Information, and Financial Market Efficiency

Derivatives and Derivative Markets

The Market for Foreign Exchange

Transactions Costs, Asymmetric Information, and the Structure of the Financial System

The Economics of Banking

Investment Banks, Mutual Funds, Hedge Funds, and the Shadow Banking System

Financial Crises and Financial Regulation

The Federal Reserve and Central Banking

The Federal Reserves Balance Sheet and the Money Supply Process

Monetary Policy

Monetary Theory I: The Aggregate Demand and Aggregate Supply Model

Monetary Theory II: The IS-MP Model

Filters