Exam 16: The International Financial System

In September 1992, the Bundesbank attempted to keep the mark from appreciating relative to the British pound, but it failed because participants in the foreign exchange market came to expect the

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

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

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

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

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

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

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

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

The official reserve transactions balance is referred to as

A disadvantage of dollarization is that it

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

What was the European Monetary System? How did its exchange rate mechanism work?

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.

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

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.

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

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

When a reserve currency country runs a balance of payments deficit and a nonreserve currency country buys the reserve currency to finance the reserve country's deficits, the monetary base in the nonreserve country ________ and the monetary base in the reserve country ________.

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.