Exam 18: The International Financial System

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.

Which of the following is true?

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

If a central bank does not want to allow the domestic currency to appreciate,it will ________ international reserves by selling its currency,thereby ________ the monetary base and increasing the risk of higher inflation.

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.

If a central bank does not want to see its currency rise in value,it may pursue ________ monetary policy to ________ the domestic interest rate,thereby weakening its currency.

A capital ________ can promote financial instability in an emerging-market country because it can lead to a lending boom and excessive risk-taking on the part of banks,which helps trigger a ________.

The monetary policy strategy that results in the loss of an independent monetary policy is

Under exchange-rate targeting,the central bank in the targeting country ________ lose the ability to pursue its own independent monetary policy and any shocks to the anchor country is ________ transmitted to the targeting country.

The current international financial system is a managed float exchange rate system because

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

Policymakers in a country with a balance of payments surplus may not want to see their country's currency appreciate because this would

Under the Bretton Woods system,if IMF loans were insufficient to prevent ________ of a currency,then the country was allowed to devalue its currency by setting a new,________ exchange rate.

Capital ________ are American purchases of foreign assets,and capital ________ are foreign purchases of American assets.

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

In the 1990s this agency has acted like an international lender of last resort to cope with financial instability.

Because it provides some indication of what is happening to U.S.claims on foreign wealth and the demand for imports and exports,the ________ is closely followed by economists wanting information on the future movement of exchange rates.

Critics of the IMF contend that its lending in the Mexican crisis,which was used to bail out foreign ________,set the stage for the ________ crisis because these ________ expected to be bailed out if things went wrong.

In September 1992,the Bundesbank attempted to keep the mark from appreciating relative to the British pound,but it failed because participants in the foreign exchange market came to expect the

In the early 1970s,the U.S.ran large balance of payments ________,causing an ________ dollar and an ________ German mark.