Question 1

Because sterilized interventions mean offsetting open market operations,

Accepted Answer

A)  there is no impact on the monetary base. 
B)  there is no impact on the money supply. 
C)  there is no effect on the exchange rate. 
D)  all of the above occur. 
E)  only A and B of the above occur. 
A)  there is no impact on the monetary base. 
B)  there is no impact on the money supply. 
C)  there is no effect on the exchange rate. 
D)  all of the above occur. 
E)  only A and B of the above occur.

Question 2

What are the arguments for and against the IMF acting as an international lender of last resort?

Accepted Answer

Yes the IMF can be appropriate lender of

Question 3

Under a managed float exchange rate regime,policymakers frequently do not want to see their currencies depreciate because it makes ________ goods more expensive for ________ consumers and contributes to inflation.

Accepted Answer

A)  foreign; foreign 
B)  foreign; domestic 
C)  domestic; foreign 
D)  domestic; domestic 
A)  foreign; foreign 
B)  foreign; domestic 
C)  domestic; foreign 
D)  domestic; domestic

Question 4

A dirty float is

Accepted Answer

A)  when the value of a currency is pegged relative to the value of one other currency. 
B)  when the value of a currency is allowed to fluctuate against all other currencies. 
C)  when countries intervene in foreign exchange markets in an attempt to influence their exchange rates by buying and selling foreign assets. 
D)  when the value of a currency is pegged relative to an anchor currency. 
A)  when the value of a currency is pegged relative to the value of one other currency. 
B)  when the value of a currency is allowed to fluctuate against all other currencies. 
C)  when countries intervene in foreign exchange markets in an attempt to influence their exchange rates by buying and selling foreign assets. 
D)  when the value of a currency is pegged relative to an anchor currency.

Question 5

How does a fixed exchange rate regime differ from a system of floating exchange rates?

Accepted Answer

A fixed exchange rate signifies a fixed

Question 6

A disadvantage of dollarization is that it

Accepted Answer

A)  prevents a central bank from creating inflation. 
B)  avoids the possibility of a speculative attack on the domestic currency. 
C)  does not allow a country to pursue its own independent monetary policy. 
D)  is a strong commitment to exchange rate stability. 
A)  prevents a central bank from creating inflation. 
B)  avoids the possibility of a speculative attack on the domestic currency. 
C)  does not allow a country to pursue its own independent monetary policy. 
D)  is a strong commitment to exchange rate stability.

Question 7

If a country's central bank eventually runs out of international reserves,it cannot keep its currency from depreciating and a devaluation must occur.

Accepted Answer

A) True 
 B)False

Question 8

The current account balance plus the capital account balance equals

Accepted Answer

A)  the amount of unsterilized exchange market intervention. 
B)  the trade balance. 
C)  the net change in government international reserves. 
D)  both A and C of the above. 
A)  the amount of unsterilized exchange market intervention. 
B)  the trade balance. 
C)  the net change in government international reserves. 
D)  both A and C of the above.

Question 9

A foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called

Accepted Answer

A)  an unsterilized foreign exchange intervention. 
B)  a sterilized foreign exchange intervention. 
C)  an exchange rate feedback rule. 
D)  a money-neutral foreign exchange intervention. 
A)  an unsterilized foreign exchange intervention. 
B)  a sterilized foreign exchange intervention. 
C)  an exchange rate feedback rule. 
D)  a money-neutral foreign exchange intervention.

Question 10

Leading up to the foreign exchange crisis of September 1992,the Bank of England wanted to pursue a(n)________ monetary policy and the German Bundesbank wanted to pursue a(n)________ monetary policy.

Accepted Answer

A)  expansionary, expansionary 
B)  expansionary; contractionary 
C)  contractionary; expansionary 
D)  contractionary; contractionary 
A)  expansionary, expansionary 
B)  expansionary; contractionary 
C)  contractionary; expansionary 
D)  contractionary; contractionary

Question 11

Which of the following are true statements about the Bretton Woods system?

Accepted Answer

A)  The Bretton Woods system was a fixed exchange rate regime, in which central banks bought and sold their own currencies to keep their exchange rates fixed. 
B)  To maintain fixed exchange rates when countries had balance of payments deficits and were losing international reserves, the IMF would loan deficit countries international reserves contributed by other members. 
C)  The German mark was called a reserve currency because it was used to denominate the securities central banks held as international reserves. 
D)  All of the above are true. 
E)  Only A and B of the above are true. 
A)  The Bretton Woods system was a fixed exchange rate regime, in which central banks bought and sold their own currencies to keep their exchange rates fixed. 
B)  To maintain fixed exchange rates when countries had balance of payments deficits and were losing international reserves, the IMF would loan deficit countries international reserves contributed by other members. 
C)  The German mark was called a reserve currency because it was used to denominate the securities central banks held as international reserves. 
D)  All of the above are true. 
E)  Only A and B of the above are true.

Question 12

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

Accepted Answer

A)  A gift to an American from his English aunt 
B)  A purchase by the Honda corporation of a U.S. Treasury bill 
C)  A purchase by the Bank of England of a U.S. Treasury bill 
D)  Income earned by the Honda corporation on its automobile plant in Ohio 
A)  A gift to an American from his English aunt 
B)  A purchase by the Honda corporation of a U.S. Treasury bill 
C)  A purchase by the Bank of England of a U.S. Treasury bill 
D)  Income earned by the Honda corporation on its automobile plant in Ohio

Question 13

The Bretton Woods agreement set up the ________,which currently provides long-term loans to assist developing countries to build dams,roads,and other physical capital that contributes to economic development.

Accepted Answer

A)  International Monetary Fund 
B)  World Bank 
C)  Central Settlements Bank 
D)  Bank of International Settlements 
E)  European Exchange Rate Mechanism (ERM) 
A)  International Monetary Fund 
B)  World Bank 
C)  Central Settlements Bank 
D)  Bank of International Settlements 
E)  European Exchange Rate Mechanism (ERM)

Question 14

The difference between merchandise exports and imports is called the

Accepted Answer

A)  current account balance. 
B)  capital account balance. 
C)  balance of payments. 
D)  trade balance. 
A)  current account balance. 
B)  capital account balance. 
C)  balance of payments. 
D)  trade balance.

Question 15

Because other countries hold dollars as international reserves,a U.S.official reserve transactions deficit can be financed by

Accepted Answer

A)  an increase in U.S. international reserves. 
B)  an increase in foreign holdings of dollars. 
C)  a decrease in foreign holdings of dollars. 
D)  only A and B of the above. 
A)  an increase in U.S. international reserves. 
B)  an increase in foreign holdings of dollars. 
C)  a decrease in foreign holdings of dollars. 
D)  only A and B of the above.

Question 16

A central bank's international reserves are its holdings of assets denominated in foreign currencies.

Accepted Answer

A) True 
 B)False

Question 17

The capital account describes ________.

Accepted Answer

A)  international transactions that involve currently produced goods and services 
B)  the flow of capital between the U.S. and other countries 
C)  payments between the U.S. and other countries 
D)  current IOUs of the U.S. 
A)  international transactions that involve currently produced goods and services 
B)  the flow of capital between the U.S. and other countries 
C)  payments between the U.S. and other countries 
D)  current IOUs of the U.S.

Question 18

A balance of payments ________ is associated with a ________ of international reserves.

Accepted Answer

A)  surplus; loss 
B)  surplus; gain 
C)  deficit; gain 
D)  balance; loss 
A)  surplus; loss 
B)  surplus; gain 
C)  deficit; gain 
D)  balance; loss

Question 19

Explain graphically how a country must intervene in the foreign exchange market under a fixed exchange rate regime if its currency is undervalued.

Accepted Answer

The central bank would need to sell dome

Question 20

In contrast to other countries' currencies,the Japanese yen and yen-denominated assets are the major component of international reserves held by countries.

Accepted Answer

A) True 
 B)False

Exam 16: The International Financial System

Because sterilized interventions mean offsetting open market operations,

What are the arguments for and against the IMF acting as an international lender of last resort?

Under a managed float exchange rate regime,policymakers frequently do not want to see their currencies depreciate because it makes ________ goods more expensive for ________ consumers and contributes to inflation.

A dirty float is

How does a fixed exchange rate regime differ from a system of floating exchange rates?

A disadvantage of dollarization is that it

If a country's central bank eventually runs out of international reserves,it cannot keep its currency from depreciating and a devaluation must occur.

The current account balance plus the capital account balance equals

A foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called

Leading up to the foreign exchange crisis of September 1992,the Bank of England wanted to pursue a(n)________ monetary policy and the German Bundesbank wanted to pursue a(n)________ monetary policy.

Which of the following are true statements about the Bretton Woods system?

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

The Bretton Woods agreement set up the ________,which currently provides long-term loans to assist developing countries to build dams,roads,and other physical capital that contributes to economic development.

The difference between merchandise exports and imports is called the

Because other countries hold dollars as international reserves,a U.S.official reserve transactions deficit can be financed by

A central bank's international reserves are its holdings of assets denominated in foreign currencies.

The capital account describes ________.

A balance of payments ________ is associated with a ________ of international reserves.

Explain graphically how a country must intervene in the foreign exchange market under a fixed exchange rate regime if its currency is undervalued.

In contrast to other countries' currencies,the Japanese yen and yen-denominated assets are the major component of international reserves held by countries.

Why Study Financial Markets and Institutions?

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation?

Why Do Interest Rates Change?

How Do Risk and Term Structure Affect Interest Rates?

Are Financial Markets Efficient?

Why Do Financial Institutions Exist?

Why Do Financial Crises Occur and

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging with Financial Derivatives

Financial Crises In Emerging Market Economies

Savings Associations and Credit Unions

Finance Companies

Filters

Under a managed float exchange rate regime,policymakers frequently do not want to see their currencies depreciate because it makes goods more expensive for consumers and contributes to inflation.

Leading up to the foreign exchange crisis of September 1992,the Bank of England wanted to pursue a(n) monetary policy and the German Bundesbank wanted to pursue a(n) monetary policy.

A balance of payments is associated with a of international reserves.