Question 1

A primary result of the Smithsonian Agreement was:

Accepted Answer

A)  the establishment of the European Monetary System (EMS). 
B)  establishing that exchange rates of most major countries were to be allowed to fluctuate 2.25% above or below their initially set values. 
C)  establishing specific rules for when tariffs and quotas could be imposed by governments. 
D)  establishing that exchange rates of most major currencies were to be allowed to fluctuate freely without boundaries (although the central banks did have the right to intervene when necessary). 
A)  the establishment of the European Monetary System (EMS). 
B)  establishing that exchange rates of most major countries were to be allowed to fluctuate 2.25% above or below their initially set values. 
C)  establishing specific rules for when tariffs and quotas could be imposed by governments. 
D)  establishing that exchange rates of most major currencies were to be allowed to fluctuate freely without boundaries (although the central banks did have the right to intervene when necessary).

Question 2

Under the system known as the "dirty" float, official boundaries for the exchange rate exist, but they are wider than they are under a fixed exchange rate system.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is not true regarding government intervention?

Accepted Answer

A)  Under the direct method of intervention, an appreciation of the dollar would be accomplished by exchanging dollars for foreign currencies. 
B)  Under nonsterilized intervention, the Fed would intervene in the foreign exchange market without adjusting the money supply. 
C)  Under sterilized intervention, the Fed would intervene simultaneously in the foreign exchange and Treasury markets. 
D)  Under indirect intervention, the Fed would attempt to affect the dollar's value by indirectly influencing the factors that determine it, such as interest rates. 
E)  All of the above are true. 
A)  Under the direct method of intervention, an appreciation of the dollar would be accomplished by exchanging dollars for foreign currencies. 
B)  Under nonsterilized intervention, the Fed would intervene in the foreign exchange market without adjusting the money supply. 
C)  Under sterilized intervention, the Fed would intervene simultaneously in the foreign exchange and Treasury markets. 
D)  Under indirect intervention, the Fed would attempt to affect the dollar's value by indirectly influencing the factors that determine it, such as interest rates. 
E)  All of the above are true.

Question 4

Direct intervention is usually more effective than indirect intervention.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following are examples of currency controls?

Accepted Answer

A)  import restrictions. 
B)  prohibition of remittance of funds. 
C)  ceilings on granting credit to foreign firms. 
D)  all of the above 
A)  import restrictions. 
B)  prohibition of remittance of funds. 
C)  ceilings on granting credit to foreign firms. 
D)  all of the above

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

To weaken the dollar using sterilized intervention, the Fed will ____ U.S. dollars and simultaneously ____ Treasury securities.

Accepted Answer

A)  buy; sell 
B)  sell; sell 
C)  sell; buy 
D)  buy; sell. 
A)  buy; sell 
B)  sell; sell 
C)  sell; buy 
D)  buy; sell.

Question 8

The euro has not been adopted by:

Accepted Answer

A)  Slovenia. 
B)  the U.K. 
C)  Germany. 
D)  France. 
A)  Slovenia. 
B)  the U.K. 
C)  Germany. 
D)  France.

Question 9

As foreign exchange activity has grown, a given degree of central bank intervention has become:

Accepted Answer

A)  more effective. 
B)  more frequent. 
C)  less effective. 
D)  none of the above 
A)  more effective. 
B)  more frequent. 
C)  less effective. 
D)  none of the above

Question 10

Dollarization refers to the replacement of local currency with U.S. dollars.

Accepted Answer

A) True 
 B)False

Question 11

The Asian crisis is generally believed to have started in Japan.

Accepted Answer

A) True 
 B)False

Question 12

Assume that Japan and the United States frequently trade with each other. Under the freely floating exchange rate system, high inflation in the U.S. will place ____ pressure on Japanese yen, ____ the amount of Japanese yen available for sale, and result in ____ inflation in Japan.

Accepted Answer

A)  upward; reduce; unchanged 
B)  upward; increase; higher 
C)  downward; reduce; unchanged 
D)  downward; increase; higher 
A)  upward; reduce; unchanged 
B)  upward; increase; higher 
C)  downward; reduce; unchanged 
D)  downward; increase; higher

Question 13

The value of the Canadian dollar, Japanese yen, and Australian dollar with respect to the U.S. dollar are part of a:

Accepted Answer

A)  pegged system. 
B)  fixed system. 
C)  managed float system. 
D)  crawling peg system. 
A)  pegged system. 
B)  fixed system. 
C)  managed float system. 
D)  crawling peg system.

Question 14

Consider two countries that trade with each other, called X and Y. According to the text, inflation in Country X will have a greater impact on inflation in Country Y under the ____ system. Now, consider two other countries that trade with each other, called A and B. Unemployment in Country A will have a greater impact on unemployment in Country B under the ____ system.

Accepted Answer

A)  floating rate; fixed rate 
B)  floating rate; floating rate 
C)  fixed rate; fixed rate 
D)  fixed rate; floating rate 
A)  floating rate; fixed rate 
B)  floating rate; floating rate 
C)  fixed rate; fixed rate 
D)  fixed rate; floating rate

Question 15

A central bank may attempt to stimulate a stagnant economy by weakening the value of the currency.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A)  upward; upward 
B)  downward; upward 
C)  upward; downward 
D)  downward; downward 
A)  upward; upward 
B)  downward; upward 
C)  upward; downward 
D)  downward; downward

Question 17

Which of the following is not true regarding the Mexican peso crisis?

Accepted Answer

A)  Mexico encouraged firms and consumers to buy an excessive amount of imports because the peso was stronger than it should have been. 
B)  Many speculators based in the U.S. speculated on the potential decline in the peso by investing their funds in Mexico. 
C)  In December of 1994, the central bank of Mexico allowed the peso to float freely. 
D)  The central bank of Mexico increased interest rates after the peso declined in value in order to prevent investors from withdrawing their investments in Mexico's debt securities. 
E)  All of the above are true. 
A)  Mexico encouraged firms and consumers to buy an excessive amount of imports because the peso was stronger than it should have been. 
B)  Many speculators based in the U.S. speculated on the potential decline in the peso by investing their funds in Mexico. 
C)  In December of 1994, the central bank of Mexico allowed the peso to float freely. 
D)  The central bank of Mexico increased interest rates after the peso declined in value in order to prevent investors from withdrawing their investments in Mexico's debt securities. 
E)  All of the above are true.

Question 18

Which of the following did not occur as a result of Bretton Woods Agreement?

Accepted Answer

A)  Each currency was valued in terms of gold. 
B)  Values of all currencies were fixed with respect to each other. 
C)  Currencies were allowed to fluctuate no more than 1% above or below the initially set rates. 
D)  The United States experienced no balance-of-trade deficits. 
A)  Each currency was valued in terms of gold. 
B)  Values of all currencies were fixed with respect to each other. 
C)  Currencies were allowed to fluctuate no more than 1% above or below the initially set rates. 
D)  The United States experienced no balance-of-trade deficits.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Which of the following countries have not adopted the euro?

Accepted Answer

A)  Germany 
B)  Italy 
C)  Switzerland 
D)  France 
A)  Germany 
B)  Italy 
C)  Switzerland 
D)  France

A primary result of the Smithsonian Agreement was:

Under the system known as the "dirty" float, official boundaries for the exchange rate exist, but they are wider than they are under a fixed exchange rate system.

Which of the following is not true regarding government intervention?

Direct intervention is usually more effective than indirect intervention.

Which of the following are examples of currency controls?

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

To weaken the dollar using sterilized intervention, the Fed will U.S. dollars and simultaneously Treasury securities.

The euro has not been adopted by:

As foreign exchange activity has grown, a given degree of central bank intervention has become:

Dollarization refers to the replacement of local currency with U.S. dollars.

The Asian crisis is generally believed to have started in Japan.

Assume that Japan and the United States frequently trade with each other. Under the freely floating exchange rate system, high inflation in the U.S. will place pressure on Japanese yen, the amount of Japanese yen available for sale, and result in inflation in Japan.

The value of the Canadian dollar, Japanese yen, and Australian dollar with respect to the U.S. dollar are part of a:

A central bank may attempt to stimulate a stagnant economy by weakening the value of the currency.

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

Which of the following is not true regarding the Mexican peso crisis?

Which of the following did not occur as a result of Bretton Woods Agreement?

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

Which of the following countries have not adopted the euro?

Multinational Financial Management: an Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

International Arbitrage and Interest Rate Parity

Relationships Among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Exam 6: Government Influence on Exchange Rates

A primary result of the Smithsonian Agreement was:

Under the system known as the "dirty" float, official boundaries for the exchange rate exist, but they are wider than they are under a fixed exchange rate system.

Which of the following is not true regarding government intervention?

Direct intervention is usually more effective than indirect intervention.

Which of the following are examples of currency controls?

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

To weaken the dollar using sterilized intervention, the Fed will ____ U.S. dollars and simultaneously ____ Treasury securities.

The euro has not been adopted by:

As foreign exchange activity has grown, a given degree of central bank intervention has become:

Dollarization refers to the replacement of local currency with U.S. dollars.

The Asian crisis is generally believed to have started in Japan.

Assume that Japan and the United States frequently trade with each other. Under the freely floating exchange rate system, high inflation in the U.S. will place ____ pressure on Japanese yen, ____ the amount of Japanese yen available for sale, and result in ____ inflation in Japan.

The value of the Canadian dollar, Japanese yen, and Australian dollar with respect to the U.S. dollar are part of a:

A central bank may attempt to stimulate a stagnant economy by weakening the value of the currency.

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

Which of the following is not true regarding the Mexican peso crisis?

Which of the following did not occur as a result of Bretton Woods Agreement?

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

Which of the following countries have not adopted the euro?

Multinational Financial Management: an Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

International Arbitrage and Interest Rate Parity

Relationships Among Inflation, Interest Rates, and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

International Corporate Governance and Control

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Debt Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

To weaken the dollar using sterilized intervention, the Fed will U.S. dollars and simultaneously Treasury securities.

Assume that Japan and the United States frequently trade with each other. Under the freely floating exchange rate system, high inflation in the U.S. will place pressure on Japanese yen, the amount of Japanese yen available for sale, and result in inflation in Japan.

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