Question 1

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

Accepted Answer

A) Conference boards 
B) Exchange rate pegs 
C) Dollarization 
D) Currency boards 
A) Conference boards 
B) Exchange rate pegs 
C) Dollarization 
D) Currency boards

Question 2

Describe the automatic stabilizers that are lost to a country that fixes its exchange rate to another currency.

Accepted Answer

If a country is experiencing an economic

Question 3

If the bonds of two different countries are identical, their expected returns will:

Accepted Answer

A) Be equal if capital flows freely internationally 
B) Always be equal 
C) Be equal only if the exchange rate between the two countries is fixed 
D) Be equal only if the inflation rate is the same in each country 
A) Be equal if capital flows freely internationally 
B) Always be equal 
C) Be equal only if the exchange rate between the two countries is fixed 
D) Be equal only if the inflation rate is the same in each country

Question 4

One reason a country would be better off fixing its exchange rate is if:

Accepted Answer

A) It has a strong reputation for controlling inflation on its own 
B) It lacks ample foreign exchange reserves 
C) It is well-integrated with the country to whose currency its currency is fixed 
D) Its own macroeconomic characteristics are inversely correlated with the macroeconomic characteristics of the country to whose currency its currency is fixed 
A) It has a strong reputation for controlling inflation on its own 
B) It lacks ample foreign exchange reserves 
C) It is well-integrated with the country to whose currency its currency is fixed 
D) Its own macroeconomic characteristics are inversely correlated with the macroeconomic characteristics of the country to whose currency its currency is fixed

Question 5

Any central bank policy that influences the domestic interest rate will:

Accepted Answer

A) Have no affect on the exchange rate if exchange rates are flexible 
B) Have an affect on the exchange rate 
C) Not impact the supply of and demand for the domestic currency if exchange rates are flexible 
D) Have to fix exchange rates 
A) Have no affect on the exchange rate if exchange rates are flexible 
B) Have an affect on the exchange rate 
C) Not impact the supply of and demand for the domestic currency if exchange rates are flexible 
D) Have to fix exchange rates

Question 6

The impact on the foreign exchange market for dollars resulting from the Fed purchasing euros will be:

Accepted Answer

A) A decrease in the demand for dollars 
B) An increase in the demand for dollars 
C) An increase in the supply of dollars 
D) A decrease in the demand for dollars and an increase in the supply of dollars 
A) A decrease in the demand for dollars 
B) An increase in the demand for dollars 
C) An increase in the supply of dollars 
D) A decrease in the demand for dollars and an increase in the supply of dollars

Question 7

If inflation in country A exceeds inflation in country B, purchasing power parity implies that:

Accepted Answer

A) The currency of country B should depreciate relative to the currency of country A 
B) The inflation rate in country B will rise to match the inflation rate in country A 
C) The currency of country A will depreciate relative to the currency of country B 
D) The inflation rate in country A will fall to match the inflation rate in country B 
A) The currency of country B should depreciate relative to the currency of country A 
B) The inflation rate in country B will rise to match the inflation rate in country A 
C) The currency of country A will depreciate relative to the currency of country B 
D) The inflation rate in country A will fall to match the inflation rate in country B

Question 8

Imagine the exchange rate between the British pound ($\le$) and the U.S.dollar ($) is fixed at $1.40/$\le$ and capital flows freely between Great Britain and the U.S.Explain what the price of shares of stock in XYZ Inc.would be selling for in London if they are $80 per share in the U.S.and why?

Accepted Answer

Each share would sell for 57.14@#LAT-DLM&s in Grea

Question 9

A speculative attack on a country with a fixed exchange rate occurs when:

Accepted Answer

A) Financial market participants believe the government will have to devalue its currency 
B) Financial market participants believe the government will have to sell off some of their international reserves 
C) Financial market participants believe the currency is undervalued 
D) The country is running out of gold reserves 
A) Financial market participants believe the government will have to devalue its currency 
B) Financial market participants believe the government will have to sell off some of their international reserves 
C) Financial market participants believe the currency is undervalued 
D) The country is running out of gold reserves

Question 10

Everything else equal, if the Fed decided to fix the euro/dollar exchange rate, what would be the impact on the interest rate in the U.S.if the euro started to appreciate in value and why?

Accepted Answer

If the Fed desired to fix the exchange r

Question 11

Everything else equal, if the Fed decided to fix the euro/dollar exchange rate, what would be the impact on the money supply in the U.S.if the euro started to decline in value and why?

Accepted Answer

If the Fed desired to fix the exchange r

Question 12

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 domestic 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 domestic monetary policy 
D) Must be running large trade deficits

Question 13

If the U.S.were to revert to a gold standard, trade deficits would:

Accepted Answer

A) Result in gold reserves in the U.S.increasing 
B) Result in higher domestic interest rates 
C) Quickly disappear 
D) Result in high inflation 
A) Result in gold reserves in the U.S.increasing 
B) Result in higher domestic interest rates 
C) Quickly disappear 
D) Result in high inflation

Question 14

If domestic residents are restricted in their ability to purchase foreign assets then their government is imposing:

Accepted Answer

A) Controls on capital inflows 
B) Controls on capital outflows 
C) Controls on both capital inflows and outflows 
D) Fixed exchange rates 
A) Controls on capital inflows 
B) Controls on capital outflows 
C) Controls on both capital inflows and outflows 
D) Fixed exchange rates

Question 15

Purchasing power parity implies:

Accepted Answer

A) A basket of goods should sell for the same price in all countries, even if trade barriers exist 
B) A basket of goods will sell for the same price in all countries as long as there are no trade barriers 
C) A basket of goods cannot sell for the same price in different countries due to the different wage rates 
D) As long as goods can move freely across international boundaries, one unit of domestic currency should buy the same basket of goods anywhere in the world 
A) A basket of goods should sell for the same price in all countries, even if trade barriers exist 
B) A basket of goods will sell for the same price in all countries as long as there are no trade barriers 
C) A basket of goods cannot sell for the same price in different countries due to the different wage rates 
D) As long as goods can move freely across international boundaries, one unit of domestic currency should buy the same basket of goods anywhere in the world

Question 16

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 17

Explain why the central bank of a country that has fixed its exchange rate would not find discussions of inflation on the agenda of its policy meetings?

Accepted Answer

as we saw in the chapter, a central bank

Question 18

What are the risks to a country of fixing its exchange rate to that of another country?

Accepted Answer

When a country fixes the value of its cu

Question 19

In 1997, there was a speculative attack on the Thai baht.This resulted from the:

Accepted Answer

A) Belief by speculators that the Thai central bank had an oversupply of U.S.dollar reserves 
B) Belief by speculators that the Thai central bank didn't have sufficient U.S.dollar reserves to maintain the current fixed rate 
C) Revelation that the Thai central bank had depleted its gold reserves 
D) Overthrow of the Thai president and the central bank 
A) Belief by speculators that the Thai central bank had an oversupply of U.S.dollar reserves 
B) Belief by speculators that the Thai central bank didn't have sufficient U.S.dollar reserves to maintain the current fixed rate 
C) Revelation that the Thai central bank had depleted its gold reserves 
D) Overthrow of the Thai president and the central bank

Question 20

China has used its current account surplus to:

Accepted Answer

A) buy stocks on the New York Stock Exchange 
B) buy German government and agency securities 
C) buy US government and agency securities 
D) make loans to foreigners 
A) buy stocks on the New York Stock Exchange 
B) buy German government and agency securities 
C) buy US government and agency securities 
D) make loans to foreigners

Exam 19: Exchange-Rate Policy and the Central Bank

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

Describe the automatic stabilizers that are lost to a country that fixes its exchange rate to another currency.

If the bonds of two different countries are identical, their expected returns will:

One reason a country would be better off fixing its exchange rate is if:

Any central bank policy that influences the domestic interest rate will:

The impact on the foreign exchange market for dollars resulting from the Fed purchasing euros will be:

If inflation in country A exceeds inflation in country B, purchasing power parity implies that:

A speculative attack on a country with a fixed exchange rate occurs when:

Everything else equal, if the Fed decided to fix the euro/dollar exchange rate, what would be the impact on the interest rate in the U.S.if the euro started to appreciate in value and why?

Everything else equal, if the Fed decided to fix the euro/dollar exchange rate, what would be the impact on the money supply in the U.S.if the euro started to decline in value and why?

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

If the U.S.were to revert to a gold standard, trade deficits would:

If domestic residents are restricted in their ability to purchase foreign assets then their government is imposing:

Purchasing power parity implies:

Within the United States, every city has:

Explain why the central bank of a country that has fixed its exchange rate would not find discussions of inflation on the agenda of its policy meetings?

What are the risks to a country of fixing its exchange rate to that of another country?

In 1997, there was a speculative attack on the Thai baht.This resulted from the:

China has used its current account surplus to:

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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