Exam 19: Exchange-Rate Policy and the Central Bank

A country that suffers from bouts of high inflation and wants to fix its exchange rate should tie its currency to the currency of a:

If a U.S.dollar currently purchases 1.3 Canadian dollars and the inflation rate in Canada over the next year is 5 percent while it is 2 percent in the U.S., we should expect a U.S.dollar to purchase:

If the Fed decides to maintain a fixed euro/dollar exchange rate when they purchase euros:

During the 1990s, the country of Chile required foreigners wishing to invest in the country to make a one-year, zero-interest deposit in the Chilean central bank equal to at least 20 percent of the investment.This is an example of:

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

How can irresponsible fiscal policy contribute to a speculative attack on a country's currency that is fixed in value to another currency?

International capital mobility:

What are the main costs to a country that adopts dollarization?

In the spring of 2005, people in business and government were calling for China to move away from its fixed-exchange rate regime because:

In April 1991, Argentina adopted a currency board primarily to address the problem of:

How did the gold standard contribute to the spreading of the Great Depression of the 1930s?

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:

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:

Reserves in the banking system will decrease if the Fed:

Which of the following statements is incorrect?

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?

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:

A foreign exchange intervention that does not alter the domestic monetary base is:

A sterilized intervention is actually a combination of two transactions.What are they and what is the effect on the monetary base?

What should be the impact on the U.S.interest rates if the Fed undertakes a sterilized foreign exchange intervention? Be sure to explain your answer.