Exam 16: The International Financial System

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.

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

Under a fixed exchange rate regime, if the domestic currency is initially ________, that is ________ par, the central bank must intervene to buy the domestic currency by selling foreign assets.

The most effective way to deal with currency crises is to

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

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.

Revaluation of a currency's value occurs when

An unsterilized intervention in which domestic currency is purchased by selling foreign assets leads to a rise in international reserves, a decrease in the money supply, and an appreciation of the domestic currency.

The current account balance plus the capital account balance equals

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

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

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

Seigniorage is

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

The Bretton Woods agreement created the ________, which was given the task of promoting the growth of world trade by setting rules for the maintenance of fixed exchange rates and by making loans to countries that were experiencing balance of payments difficulties.

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.

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.

Under a fixed exchange rate regime, when the domestic currency is overvalued, the central bank must ________ the domestic currency to keep the exchange rate fixed; as a result, it ________ international reserves.

Policymakers may not want to see their country's currency appreciate because

What kind of exchange rate system did the Bretton Woods agreement establish?