Exam 6: Government Influence on Exchange Rates

A primary result of the Bretton Woods Agreement was:

A country with a currency board does not have control over its local interest rates.

If a government wishes to stimulate its economy in the form of increased foreign demand for its country's products, it could attempt to weaken its currency.

When using indirect intervention, a central bank is likely to focus on:

An advantage of a fixed exchange rate system is that governments are not required to constantly intervene in the foreign exchange market to maintain exchange rates within specified boundaries.

An advantage of a fixed exchange rate system is that governments are not required to constantly intervene in the foreign exchange market to maintain exchange rates within specified boundaries.

In a sterilized exchange rate arrangement, a country's home currency value is pegged to a foreign currency or to some unit of account.

If the Fed ____ the interest rates when inflationary expectations remain unchanged, the most likely result is that the value of dollar will ____ and the economy may ____.

Direct intervention is usually more effective than indirect intervention.

All European countries now use the euro as their currency.

Assume Countries A, B, and C produce goods that are substitutes of each other and that these countries engage in trade with each other. Assume that Country A's currency floats against Country B's currency, and that Country C's currency is pegged to B's. If A's currency depreciates against B, then A's exports to C should ____, and A's imports from C should ____.

Which of the following are examples of currency controls?

The establishment of the euro allows for more consistent economic conditions across countries but eliminates the power of any individual European country to solve local economic problems with its own unique monetary policy.

Using indirect intervention, the Fed attempts to affect the dollar's value indirectly by influencing the factors that determine it, such as interest rates.

Under a pegged exchange rate system, the home currency's value is pegged to a foreign currency.

While a weak currency can reduce unemployment at home, it can also lead to higher inflation, as local companies are better able to raise prices.

If the French government wants to decrease inflation in France, it will exchange foreign currency for euros.

The euro is pegged to other currencies of European countries that have not adopted the euro.

The monetary policy implemented by the European Central Bank always results in favorable effects on all countries in the eurozone.

The Smithsonian Agreement called for a devaluation of the U.S. dollar by about ____ percent.