Exam 16: The International Financial System

By the end of 2010, China had accumulated more than $2 trillion of international reserves.

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

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.

An argument that supports the view that the world needs an international lender of last resort such as the IMF is that

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

An anchor currency provides the base for a floating exchange rate system.

A central bank ________ of domestic currency and corresponding ________ of foreign assets in the foreign exchange market leads to an equal ________ in its international reserves and the monetary base.

An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to a gain in international reserves.

The most effective way to deal with currency crises is to

Explain graphically the speculative attacks that occurred against the British pound in 1992, the Mexican peso in 1994, the Thai baht in 1997, the Brazilian real in 1999, and the Argentine peso in 2002.

The official reserve transactions balance is referred to as

In a fixed exchange rate system, a country whose currency is undervalued will lose international reserves.

A current account ________ indicates that the United States is ________ its claims on foreign wealth.

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

The euro is unlikely to seriously challenge the dollar as a reserve currency as long as

When the Bundesbank lowered German mark interest rates in September 1992,

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

The capital account describes the flow of capital between the United States and other countries. Capital inflows are

The current account balance plus the capital account balance equals the net change in government international reserves.

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