Question 1

Countries that use the euro as their currency face similar concerns as countries did during the years of the gold standard in that each are (were)

Accepted Answer

A)  unable to conduct monetary policy. 
B)  unable to conduct fiscal policy. 
C)  using currency which is backed by gold. 
D)  using a floating currency. 
A)  unable to conduct monetary policy. 
B)  unable to conduct fiscal policy. 
C)  using currency which is backed by gold. 
D)  using a floating currency.

Question 2

Firms in Thailand that had borrowed dollars while the baht was pegged to the dollar faced interest payments that were ________ than they had planned while the Thai government continued trying to defend the peg,because the baht had been pegged ________ the equilibrium exchange rate for the baht.

Accepted Answer

A)  higher; above 
B)  higher; below 
C)  lower; above 
D)  lower; below 
A)  higher; above 
B)  higher; below 
C)  lower; above 
D)  lower; below

Question 3

Under the Bretton Woods exchange rate system,set up in 1944,which of the following was true?

Accepted Answer

A)  Americans could sell their dollars to the American government in exchange for gold. 
B)  Americans could sell their dollars to the American government in exchange for silver. 
C)  Americans could sell their dollars to foreign central banks in exchange for gold. 
D)  Foreign central banks could sell their dollars to the American government in exchange for gold. 
A)  Americans could sell their dollars to the American government in exchange for gold. 
B)  Americans could sell their dollars to the American government in exchange for silver. 
C)  Americans could sell their dollars to foreign central banks in exchange for gold. 
D)  Foreign central banks could sell their dollars to the American government in exchange for gold.

Question 4

Under the gold standard,to increase the money supply in the country,the government must

Accepted Answer

A)  simply print more currency. 
B)  have enough gold to back up the increase in the money supply. 
C)  buy foreign currencies with dollars to increase foreign currency reserves. 
D)  increase the value of the country's currency on foreign exchange markets. 
A)  simply print more currency. 
B)  have enough gold to back up the increase in the money supply. 
C)  buy foreign currencies with dollars to increase foreign currency reserves. 
D)  increase the value of the country's currency on foreign exchange markets.

Question 5

How will the exchange rate (foreign currency per dollar)respond to an increase in the relative rate of productivity growth in the United States in the long run?

Accepted Answer

A)  Exchange rates will rise. 
B)  Exchange rates will fall. 
C)  Exchange rates will be unaffected by changes in the relative rate of productivity growth in the United States, both in the short run and in the long run. 
D)  The exchange rate will be affected in the short run, but not in the long run. 
A)  Exchange rates will rise. 
B)  Exchange rates will fall. 
C)  Exchange rates will be unaffected by changes in the relative rate of productivity growth in the United States, both in the short run and in the long run. 
D)  The exchange rate will be affected in the short run, but not in the long run.

Question 6

When the value of a currency is determined mostly by demand and supply,but with occasional government intervention,the exchange rate system is defined as

Accepted Answer

A)  fixed. 
B)  floating. 
C)  managed float. 
D)  Bretton Woods. 
A)  fixed. 
B)  floating. 
C)  managed float. 
D)  Bretton Woods.

Question 7

In order to support an undervalued euro,the European Central Bank must ________ dollars.Over time,this action will cause the rate of inflation in the EU to ________.

Accepted Answer

A)  buy; decrease 
B)  buy; increase 
C)  sell; increase 
D)  sell; decrease 
A)  buy; decrease 
B)  buy; increase 
C)  sell; increase 
D)  sell; decrease

Question 8

A depreciation of a country's currency always lowers the domestic firm's profits.

Accepted Answer

A) True 
 B)False

Question 9

Figure 30-7  
-Refer to Figure 30-7.Under the Bretton Woods System of exchange rates,if the par exchange rate was $4 per pound in the figure above,then which of the following is true?

Accepted Answer

A)  The Bank of England would have to buy 0.7 million pounds per day with dollars. 
B)  There is a shortage of pounds equal to 0.7 million. 
C)  The Bank of England would have to sell 0.7 million pounds per day in exchange for dollars. 
D)  The par exchange rate is below the equilibrium rate, causing a shortage of domestic currency. 
A)  The Bank of England would have to buy 0.7 million pounds per day with dollars. 
B)  There is a shortage of pounds equal to 0.7 million. 
C)  The Bank of England would have to sell 0.7 million pounds per day in exchange for dollars. 
D)  The par exchange rate is below the equilibrium rate, causing a shortage of domestic currency.

Question 10

The exchange rate system agreed to in 1944 in which the U.S.government agreed to buy or sell gold at a fixed price of $35 per ounce is referred to as

Accepted Answer

A)  the gold standard. 
B)  the Bretton Woods System. 
C)  a floating currency standard. 
D)  a flexible exchange rate system. 
A)  the gold standard. 
B)  the Bretton Woods System. 
C)  a floating currency standard. 
D)  a flexible exchange rate system.

Question 11

Shares of stock and long-term debt,including corporate and government bonds and bank loans,are bought and sold on

Accepted Answer

A)  the stock market. 
B)  capital markets. 
C)  foreign exchange markets. 
D)  commodity markets. 
A)  the stock market. 
B)  capital markets. 
C)  foreign exchange markets. 
D)  commodity markets.

Question 12

Figure 30-5  
-Refer to Figure 30-5.Suppose the Chinese government decides to abandon pegging the yuan to the dollar at a rate which undervalues the yuan.Using the figure above,the equilibrium exchange rate would be ________ and Chinese exports to the United States would ________ in price.

Accepted Answer

A)  $0.11/yuan; decrease 
B)  $0.11/yuan; increase 
C)  $0.14/yuan; increase 
D)  $0.13/yuan; increase 
E)  $0.13/yuan; decrease 
A)  $0.11/yuan; decrease 
B)  $0.11/yuan; increase 
C)  $0.14/yuan; increase 
D)  $0.13/yuan; increase 
E)  $0.13/yuan; decrease

Question 13

Purchasing power parity is the theory that,in the long run,exchange rates should be at a level such that equivalent amounts of any country's currency

Accepted Answer

A)  will equalize nominal interest rates across countries. 
B)  are valued inversely relative to the size of its GDP. 
C)  should earn the same real rate of return. 
D)  allow one to buy the same amount of goods and services. 
A)  will equalize nominal interest rates across countries. 
B)  are valued inversely relative to the size of its GDP. 
C)  should earn the same real rate of return. 
D)  allow one to buy the same amount of goods and services.

Question 14

During the Chinese experience with pegging the yuan to the dollar,the yuan was undervalued.As a result,

Accepted Answer

A)  there was a surplus of yuan on the market that the Chinese government had to purchase to maintain the peg, depleting China's reserves of dollars. 
B)  there was a surplus of dollars on the market that the Chinese government had to purchase to maintain the peg. 
C)  the prices of Chinese exports were higher than they would have been without the peg. 
D)  the equilibrium value of the yuan was below the pegged value of the yuan. 
A)  there was a surplus of yuan on the market that the Chinese government had to purchase to maintain the peg, depleting China's reserves of dollars. 
B)  there was a surplus of dollars on the market that the Chinese government had to purchase to maintain the peg. 
C)  the prices of Chinese exports were higher than they would have been without the peg. 
D)  the equilibrium value of the yuan was below the pegged value of the yuan.

Question 15

If one U.S.dollar could be exchanged for one Canadian dollar in 1970,and one U.S.dollar can now be exchanged for 1.13 Canadian dollars,which of the following is true?

Accepted Answer

A)  The U.S. dollar lost value against the Canadian dollar. 
B)  The Canadian dollar lost value against the U.S. dollar. 
C)  The Canadian dollar gained value against the U.S. dollar. 
D)  Both A and C are true. 
A)  The U.S. dollar lost value against the Canadian dollar. 
B)  The Canadian dollar lost value against the U.S. dollar. 
C)  The Canadian dollar gained value against the U.S. dollar. 
D)  Both A and C are true.

Question 16

Which of the following is most important in explaining exchange rate fluctuations in the short run?

Accepted Answer

A)  relative price levels across countries 
B)  preferences for domestic and foreign goods 
C)  interest rates 
D)  relative rates of productivity growth across countries 
A)  relative price levels across countries 
B)  preferences for domestic and foreign goods 
C)  interest rates 
D)  relative rates of productivity growth across countries

Question 17

Figure 30-7  
-Refer to Figure 30-7.Under the Bretton Woods System of exchange rates,if the par exchange rate was $2 per pound in the figure above,and equilibrium persisted at $3,then a revaluation of the currency would have

Accepted Answer

A)  increased the price of British exports to the United States. 
B)  increased the price of imports to Britain. 
C)  led to a current account surplus. 
D)  led to a balance of trade surplus. 
A)  increased the price of British exports to the United States. 
B)  increased the price of imports to Britain. 
C)  led to a current account surplus. 
D)  led to a balance of trade surplus.

Question 18

An easy way to determine if a currency is undervalued at a point in time is to use the model of purchasing power parity.

Accepted Answer

A) True 
 B)False

Question 19

The German central bank,the Bundesbank,faced the risk of increased inflation caused by its actions to support an overvalued deutsche mark in the 1960s.

Accepted Answer

A) True 
 B)False

Question 20

You are a Canadian citizen who works in Toronto,Canada and owns a winter home in Phoenix,Arizona.When you spend the winters in Phoenix,an increase in the value of the Canadian dollar relative to the U.S.dollar should

Accepted Answer

A)  help you as each Canadian dollar of your salary is now worth more U.S. dollars. 
B)  hurt you as each Canadian dollar of your salary is now worth less U.S. dollars. 
C)  hurt you as it is now more expensive to live in Phoenix since the Canadian dollar appreciation. 
D)  help you as it is now less expensive to live in Canada since the Canadian dollar appreciation. 
A)  help you as each Canadian dollar of your salary is now worth more U.S. dollars. 
B)  hurt you as each Canadian dollar of your salary is now worth less U.S. dollars. 
C)  hurt you as it is now more expensive to live in Phoenix since the Canadian dollar appreciation. 
D)  help you as it is now less expensive to live in Canada since the Canadian dollar appreciation.

Exam 30: The International Financial System

Countries that use the euro as their currency face similar concerns as countries did during the years of the gold standard in that each are (were)

Firms in Thailand that had borrowed dollars while the baht was pegged to the dollar faced interest payments that were ________ than they had planned while the Thai government continued trying to defend the peg,because the baht had been pegged ________ the equilibrium exchange rate for the baht.

Under the Bretton Woods exchange rate system,set up in 1944,which of the following was true?

Under the gold standard,to increase the money supply in the country,the government must

How will the exchange rate (foreign currency per dollar)respond to an increase in the relative rate of productivity growth in the United States in the long run?

When the value of a currency is determined mostly by demand and supply,but with occasional government intervention,the exchange rate system is defined as

In order to support an undervalued euro,the European Central Bank must ________ dollars.Over time,this action will cause the rate of inflation in the EU to ________.

A depreciation of a country's currency always lowers the domestic firm's profits.

Figure 30-7 -Refer to Figure 30-7.Under the Bretton Woods System of exchange rates,if the par exchange rate was $4 per pound in the figure above,then which of the following is true?

The exchange rate system agreed to in 1944 in which the U.S.government agreed to buy or sell gold at a fixed price of $35 per ounce is referred to as

Shares of stock and long-term debt,including corporate and government bonds and bank loans,are bought and sold on

Figure 30-5 -Refer to Figure 30-5.Suppose the Chinese government decides to abandon pegging the yuan to the dollar at a rate which undervalues the yuan.Using the figure above,the equilibrium exchange rate would be ________ and Chinese exports to the United States would ________ in price.

Purchasing power parity is the theory that,in the long run,exchange rates should be at a level such that equivalent amounts of any country's currency

During the Chinese experience with pegging the yuan to the dollar,the yuan was undervalued.As a result,

If one U.S.dollar could be exchanged for one Canadian dollar in 1970,and one U.S.dollar can now be exchanged for 1.13 Canadian dollars,which of the following is true?

Which of the following is most important in explaining exchange rate fluctuations in the short run?

Figure 30-7 -Refer to Figure 30-7.Under the Bretton Woods System of exchange rates,if the par exchange rate was $2 per pound in the figure above,and equilibrium persisted at $3,then a revaluation of the currency would have

An easy way to determine if a currency is undervalued at a point in time is to use the model of purchasing power parity.

The German central bank,the Bundesbank,faced the risk of increased inflation caused by its actions to support an overvalued deutsche mark in the 1960s.

You are a Canadian citizen who works in Toronto,Canada and owns a winter home in Phoenix,Arizona.When you spend the winters in Phoenix,an increase in the value of the Canadian dollar relative to the U.S.dollar should

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Where Prices Come From: the Interaction of Demand and Supply

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Firms in Thailand that had borrowed dollars while the baht was pegged to the dollar faced interest payments that were than they had planned while the Thai government continued trying to defend the peg,because the baht had been pegged the equilibrium exchange rate for the baht.

In order to support an undervalued euro,the European Central Bank must dollars.Over time,this action will cause the rate of inflation in the EU to .

Figure 30-5 -Refer to Figure 30-5.Suppose the Chinese government decides to abandon pegging the yuan to the dollar at a rate which undervalues the yuan.Using the figure above,the equilibrium exchange rate would be and Chinese exports to the United States would in price.