Question 1

Many believe that the statistical discrepancy is primarily the result of

Accepted Answer

A) large hidden capital flows into the United States. 
B) large hidden capital flows out of the United States. 
C) measurement errors due to exchange rate calculations. 
D) none of the above. 
A) large hidden capital flows into the United States. 
B) large hidden capital flows out of the United States. 
C) measurement errors due to exchange rate calculations. 
D) none of the above.

Question 2

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 3

A sterilized intervention leaves the money supply changed and has a direct way of affecting interest rates or the expected future exchange rate.

Accepted Answer

A) True 
 B)False

Question 4

An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to

Accepted Answer

A) a gain in international reserves. 
B) a decrease in the money supply. 
C) an appreciation in the domestic currency. 
D) all of the above. 
E) only A and B of the above. 
A) a gain in international reserves. 
B) a decrease in the money supply. 
C) an appreciation in the domestic currency. 
D) all of the above. 
E) only A and B of the above.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Holding other factors constant, which of the following would decrease the size of the U.S. current account deficit?

Accepted Answer

A) an increase in the amount of services purchased from foreigners 
B) an increase in the amount of goods purchases from foreigners 
C) an increase in the amount of goods sold to foreigners 
D) only A and B of the above 
A) an increase in the amount of services purchased from foreigners 
B) an increase in the amount of goods purchases from foreigners 
C) an increase in the amount of goods sold to foreigners 
D) only A and B of the above

Question 7

A central bank sale of ________ to purchase ________ in the foreign exchange market results in an equal rise in its international reserves and the monetary base.

Accepted Answer

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

Question 8

Briefly explain what it means to be a "reserve-currency" country. What are the advantages? Can you think of any disadvantages?

Accepted Answer

The answer of Briefly explain what it means to be...

Question 9

Depreciation of a currency occurs when

Accepted Answer

A) a floating exchange rate adjusts upward. 
B) a floating exchange rate adjusts downward. 
C) a fixed exchange rate is adjusted upward. 
D) a fixed exchange rate is adjusted downward. 
A) a floating exchange rate adjusts upward. 
B) a floating exchange rate adjusts downward. 
C) a fixed exchange rate is adjusted upward. 
D) a fixed exchange rate is adjusted downward.

Question 10

How does a sterilized foreign exchange intervention differ from an unsterilized one in terms of its effects on the exchange rate, international reserves, and the monetary base?

Accepted Answer

The answer of How does a sterilized foreign exchange intervention...

Question 11

Describe the pros and cons for controls on capital inflows and outflows.

Accepted Answer

The answer of Describe the pros and cons for controls...

Question 12

Given the size of the statistical discrepancy needed to balance the balance of payments account, one can infer that

Accepted Answer

A) hidden capital flows into the U.S. are inconsequential. 
B) items in the balance of payments are measured quite accurately. 
C) many international transactions go unrecorded. 
D) all of the above occur. 
A) hidden capital flows into the U.S. are inconsequential. 
B) items in the balance of payments are measured quite accurately. 
C) many international transactions go unrecorded. 
D) all of the above occur.

Question 13

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 14

If the domestic currency is initially undervalued, that is below par, the central bank must intervene to sell the ________ currency by purchasing ________ assets.

Accepted Answer

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

Question 15

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.

Accepted Answer

A) expansionary; raise 
B) contractionary; raise 
C) expansionary; lower 
D) contractionary; lower 
A) expansionary; raise 
B) contractionary; raise 
C) expansionary; lower 
D) contractionary; lower

Question 16

Under the Bretton Woods system, when a nonreserve-currency country was running a balance of payments deficit,

Accepted Answer

A) it gained international reserves. 
B) it lost international reserves. 
C) it was necessary for the policymakers to implement a contractionary monetary policy. 
D) both A and C of the above occurred. 
E) both B and C of the above occurred. 
A) it gained international reserves. 
B) it lost international reserves. 
C) it was necessary for the policymakers to implement a contractionary monetary policy. 
D) both A and C of the above occurred. 
E) both B and C of the above occurred.

Question 17

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

Accepted Answer

A) The Bretton Woods system was a flexible exchange rate regime, in which central banks allowed their currencies to float within a wide trading band. 
B) The U.S. dollar was called a reserve currency because it was used to denominate the securities central banks held as international reserves. 
C) The Bretton Woods agreement broke down in 1945. 
D) Only A and B of the above are true. 
A) The Bretton Woods system was a flexible exchange rate regime, in which central banks allowed their currencies to float within a wide trading band. 
B) The U.S. dollar was called a reserve currency because it was used to denominate the securities central banks held as international reserves. 
C) The Bretton Woods agreement broke down in 1945. 
D) Only A and B of the above are true.

Question 18

A managed float regime is when countries intervene in foreign exchange markets in an attempt to influence their exchange rates by buying and selling foreign assets.

Accepted Answer

A) True 
 B)False

Question 19

When the central bank allows the purchase or sale of domestic currency to have an effect on the monetary base, it is called

Accepted Answer

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

Question 20

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

Exam 16: The International Financial System

Many believe that the statistical discrepancy is primarily the result of

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 sterilized intervention leaves the money supply changed and has a direct way of affecting interest rates or the expected future exchange rate.

An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to

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

Holding other factors constant, which of the following would decrease the size of the U.S. current account deficit?

A central bank sale of ________ to purchase ________ in the foreign exchange market results in an equal rise in its international reserves and the monetary base.

Briefly explain what it means to be a "reserve-currency" country. What are the advantages? Can you think of any disadvantages?

Depreciation of a currency occurs when

How does a sterilized foreign exchange intervention differ from an unsterilized one in terms of its effects on the exchange rate, international reserves, and the monetary base?

Describe the pros and cons for controls on capital inflows and outflows.

Given the size of the statistical discrepancy needed to balance the balance of payments account, one can infer that

Because sterilized interventions mean offsetting open market operations,

If the domestic currency is initially undervalued, that is below par, the central bank must intervene to sell the ________ currency by purchasing ________ assets.

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 Bretton Woods system, when a nonreserve-currency country was running a balance of payments deficit,

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

A managed float regime is when countries intervene in foreign exchange markets in an attempt to influence their exchange rates by buying and selling foreign assets.

When the central bank allows the purchase or sale of domestic currency to have an effect on the monetary base, it 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.

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 Why Are They so Damaging to the Economy

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

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.

A central bank sale of to purchase in the foreign exchange market results in an equal rise in its international reserves and the monetary base.

If the domestic currency is initially undervalued, that is below par, the central bank must intervene to sell the currency by purchasing assets.

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.

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.