Question 1

The United States chooses to have ________ and ________ and therefore,cannot have a fixed exchange rate at the same time.

Accepted Answer

A) capital control,an independent monetary policy 
B) free capital mobility,an independent monetary policy 
C) free capital mobility,no control of monetary policy 
D) capital control,no control of monetary policy

Question 2

Because many emerging market countries have not developed the political or monetary institutions that allow the successful use of discretionary monetary policy,

Accepted Answer

A) they have little to gain from pegging their exchange rate to an anchor country like the U.S.or Germany. 
B) they have little to gain from using a nominal anchor,because it would mean a monetary policy that is overly expansionary. 
C) they have very little to gain from an independent monetary policy,but a lot to lose. 
D) they would be better off giving their central bankers the independence to use discretion,rather than take their discretion away through any nominal anchor.

Question 3

To maintain fixed exchange rates when countries had balance of payments deficits and were losing international reserves,the ________ would loan ________ countries international reserves contributed by other members.

Accepted Answer

A) IMF; deficit 
B) IMF; surplus 
C) World Bank; deficit 
D) World Bank; surplus

Question 4

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.

Accepted Answer

A) expansionary; raise 
B) contractionary; raise 
C) expansionary; lower 
D) contractionary; lower

Question 5

To keep from running out of international reserves under the Bretton Woods system,a country had to implement ________ monetary policy to ________ its currency.

Accepted Answer

A) expansionary; strengthen 
B) expansionary; weaken 
C) contractionary; strengthen 
D) contractionary; weaken

Question 6

The net amount of international reserves that move between governments to finance international transactions is called the ________ balance.

Accepted Answer

A) capital account 
B) current account 
C) trade 
D) official reserve transactions

Question 7

If the current account balance shows a surplus,and the capital account also shows a surplus,then the official reserve transactions balance

Accepted Answer

A) must be positive. 
B) must be negative. 
C) must be zero. 
D) can either be positive,negative,or zero.

Question 8

China chooses to have ________ and ________ and therefore,cannot have free capital mobility at the same time.

Accepted Answer

A) a fixed exchange rate,no control of monetary policy. 
B) a fixed exchange rate,an independent monetary policy. 
C) a flexible exchange rate,an independent monetary policy. 
D) a flexible exchange rate,no control of monetary policy.

Question 9

The monetary policy strategy that directly ties down the price of internationally traded goods is

Accepted Answer

A) exchange-rate targeting. 
B) monetary targeting. 
C) inflation targeting. 
D) the implicit nominal anchor.

Question 10

A foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called

Accepted Answer

A) an unsterilized foreign exchange intervention. 
B) a sterilized foreign exchange intervention. 
C) an exchange rate feedback rule. 
D) a money neutral foreign exchange intervention.

Question 11

Under a fixed exchange rate regime,if a country has an ________ exchange rate,then its central bank's attempt to keep its currency from appreciating will result in a ________ of international reserves.

Accepted Answer

A) undervalued; gain 
B) undervalued; loss 
C) overvalued; gain 
D) overvalued; loss

Question 12

The Bretton Woods system was one in which central banks

Accepted Answer

A) bought and sold their own currencies to keep their exchange rates fixed. 
B) agreed not to intervene in the foreign exchange market to maintain a fixed exchange rate regime that had existed prior to World War I. 
C) agreed to limit domestic money growth to the average of the five largest industrial nations. 
D) agreed to limit domestic money growth to the average of the seven largest industrial nations.

Question 13

Since the abandonment of the Bretton Woods system,balance of payments considerations have become ________ important,and exchange rate considerations ________ important in the conduct of monetary policy.

Accepted Answer

A) more; less 
B) more; more 
C) less; less 
D) less; more

Question 14

In response to the overvalued dollar in the early 1970s,the German Bundesbank bought dollars and sold marks to keep the exchange rate fixed,gaining international reserves.The huge purchase of international reserves meant that the German monetary base began to ________,leading to ________ growth in the German money supply.

Accepted Answer

A) decline; sluggish 
B) decline; rapid 
C) grow; sluggish 
D) grow; rapid

Question 15

Under an exchange-rate targeting rule for monetary policy,a crawling peg

Accepted Answer

A) fixes the value of the domestic currency to a commodity such as gold. 
B) fixes the value of the domestic currency to that of a large,low-inflation country. 
C) allows the domestic currency to depreciate at a steady rate so that inflation in the pegging country can be higher than that of the anchor country. 
D) allows the domestic currency to depreciate at a steady rate so that inflation in the pegging country can be lower than that of the anchor country.

Question 16

Under the Exchange Rate Mechanism of the European Monetary System,when the British pound depreciated below its lower limit against the German mark,the German central bank was required to buy ________ and sell ________,thereby ________ international reserves.

Accepted Answer

A) pounds; marks; losing 
B) pounds; marks; gaining 
C) marks; pounds; gaining 
D) marks; pounds; losing

Question 17

Under a fixed exchange rate system,countries that ran large,persistent balance of payments surpluses would ________ international reserves,thereby pressuring them into ________ their exchange rate.

Accepted Answer

A) gain; devaluing 
B) gain; revaluing 
C) lose; devaluing 
D) lose; revaluing

Question 18

An ECU was

Accepted Answer

A) a paper substitute for gold issued by the IMF. 
B) a loan by European countries to the IMF. 
C) a paper currency issued by the European Common Market. 
D) a monetary unit created by the European Monetary System.

Question 19

Which of the following is not an advantage to exchange-rate targeting?

Accepted Answer

A) It provides a strong nominal anchor to keep inflation under control. 
B) It provides an automatic rule for policy to help avoid the time-inconsistency problem. 
C) It is simple and clear so that the public can easily understand it. 
D) It increases the accountability of policymakers.

Question 20

The account that shows international transactions involving financial transactions (stocks,bonds,bank loans,etc.)is called the

Accepted Answer

A) trade balance. 
B) current account. 
C) balance of payments. 
D) capital account.

Exam 18: The International Financial System

The United States chooses to have and and therefore,cannot have a fixed exchange rate at the same time.

Because many emerging market countries have not developed the political or monetary institutions that allow the successful use of discretionary monetary policy,

To maintain fixed exchange rates when countries had balance of payments deficits and were losing international reserves,the would loan countries international reserves contributed by other members.

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.

To keep from running out of international reserves under the Bretton Woods system,a country had to implement monetary policy to its currency.

The net amount of international reserves that move between governments to finance international transactions is called the ________ balance.

If the current account balance shows a surplus,and the capital account also shows a surplus,then the official reserve transactions balance

China chooses to have and and therefore,cannot have free capital mobility at the same time.

The monetary policy strategy that directly ties down the price of internationally traded goods is

A foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called

Under a fixed exchange rate regime,if a country has an exchange rate,then its central bank's attempt to keep its currency from appreciating will result in a of international reserves.

The Bretton Woods system was one in which central banks

Since the abandonment of the Bretton Woods system,balance of payments considerations have become important,and exchange rate considerations important in the conduct of monetary policy.

Under an exchange-rate targeting rule for monetary policy,a crawling peg

Under the Exchange Rate Mechanism of the European Monetary System,when the British pound depreciated below its lower limit against the German mark,the German central bank was required to buy and sell ,thereby international reserves.

Under a fixed exchange rate system,countries that ran large,persistent balance of payments surpluses would international reserves,thereby pressuring them into their exchange rate.

An ECU was

Which of the following is not an advantage to exchange-rate targeting?

The account that shows international transactions involving financial transactions (stocks,bonds,bank loans,etc.) is called the