Exam 6: Government Influence on Exchange Rates

Assume a central bank exchanges its currency for other foreign currencies in the foreign exchange market, but does not adjust for the resulting change in the money supply. This is an example of:

The euro has not been adopted by:

A strong dollar places ____ pressure on U.S. inflation, which in turn places ____ pressure on U.S. interest rates, which in turn place ____ pressure on U.S. bond prices.

A "dirty" float represents a system of:

A strong dollar places ____ pressure on inflation, which in turn places ____ pressure on the dollar.

Assume the Fed desires to strengthen the dollar. If it buys dollars and simultaneously buys Treasury securities, this is an example of sterilized intervention.

An advantage of freely floating exchange rates is that a country with floating exchange rates is more insulated from unemployment problems in other countries.

A strong dollar is normally expected to cause:

Market forces are the determinant of exchange rates in a freely floating exchange rate system.

A strong home currency can harm exports; exporters typically benefit from a weaker home country currency.

Countries that have adopted the euro tend to have very similar ____.

The Smithsonian Agreement was an agreement to allow currencies of major countries to float without any barriers.

The European countries conforming to the euro are completely insulated from movements in the euro's value with respect to other currencies.

If the Bank of England announces that it will start to frequently intervene in order to reduce the fluctuations of British pound, the premiums on call and put options will increase.

Currency devaluations have the potential to reduce unemployment, while currency revaluations have the potential to reduce inflation.

Which one of the following is a disadvantage of a fixed exchange rate system:

A possible reason why China was less affected by the Asian crisis is that its government exerts more influence on private enterprise than the governments of other Asian countries.

A common way to reduce inflation is to weaken the value of the domestic currency.

The risk-free interest rates among countries that have adopted the euro should:

The Fed's indirect method of intervention is to trade dollars for or against other currencies.