Exam 18: The International Financial System

Exchange-rate targeting allows a central bank to ________,thus this will ________ the probability of policy developing a time-inconsistency problem.

The difference between merchandise exports and imports is called the ________ balance.

To maintain fixed exchange rates when countries had balance of payments deficits and were losing international reserves,the ________ would loan ________ countries international reserves contributed by other members.

Explain and demonstrate graphically how an unsterilized purchase of foreign assets leads to overshooting of the exchange rate,and describe the long-run behavior of the exchange rate,everything else held constant.

Under a fixed exchange rate regime,a country that depletes its international reserves in an attempt to keep its currency from ________ will be forced to ________ its currency.

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 central bank must intervene to purchase the domestic currency by selling foreign assets,then,like an open market sale,this action ________ the monetary base and the money supply,causing the interest rate on domestic assets to ________.

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

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

Which of the following is not a disadvantage of controls on capital outflows?

A weakness of the Bretton Woods system was that the ________ had no way to force surplus countries to either revalue their exchange rates upwards or pursue more expansionary policies.

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.

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.

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.

Under the Exchange Rate Mechanism of the European Monetary System,when the German mark depreciated below its lower limit against the British pound,the German central bank was required to buy ________ and sell ________,thereby ________ international reserves.

Suppose that the Bank of Japan buys yen-denominated assets with U.S.dollar assets.Everything else held constant,this transaction will cause ________ in the foreign assets held by the Federal Reserve and ________ in the U.S.monetary base.

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

A case for capital inflow controls can be made because capital inflows

Under a gold standard in which one dollar could be turned in to the U.S.Treasury and exchanged for 1/20th of an ounce of gold and one German mark could be exchanged for 1/100th of an ounce of gold,an exchange rate of ________ marks to the dollar would stimulate a flow of gold from the United States to Germany.

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