Question 1

When the domestic currency is initially overvalued in a fixed exchange rate regime, the central bank must intervene in the foreign exchange market to ________ the domestic currency, thereby allowing the money supply to ________.

Accepted Answer

A)  purchase; decline 
B)  sell; decline 
C)  purchase; increase 
D)  sell; increase

Question 2

Which of the following does not appear in the current account part of the balance of payments?

Accepted Answer

A)  A loan of $1 million from CIBC to Brazil 
B)  Foreign aid to El Salvador 
C)  An Air France ticket bought by a Canadian 
D)  Income earned by GM from its plants abroad

Question 3

Policymakers in a country with a balance of payments surplus may not want to see their country's currency appreciate because this would ________.

Accepted Answer

A)  hurt consumers in their country by making foreign goods more expensive 
B)  hurt domestic businesses by making foreign goods cheaper in their country 
C)  increase inflation in their country 
D)  decrease the wealth of the country

Question 4

Everything else held constant, if a central bank makes an unsterilized ________ of foreign assets, then the domestic money supply will ________ and the domestic currency will depreciate.

Accepted Answer

A)  purchase; increase 
B)  purchase; decrease 
C)  sale; increase 
D)  sale; decrease

Question 5

Under the Bretton Woods system, when a country adopted an expansionary monetary policy, thereby causing a balance of payments ________, the country would eventually be forced to implement ________ monetary policy.

Accepted Answer

A)  deficit; expansionary 
B)  deficit; contractionary 
C)  surplus; expansionary 
D)  surplus; contractionary

Question 6

The monetary policy strategy that provides an automatic rule for the conduct of monetary policy is ________.

Accepted Answer

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

Question 7

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 8

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 9

Under the current managed float exchange rate regime, countries with ________ in their balance of payments frequently do not want to see their currencies ________ because it makes their goods more expensive abroad and foreign goods cheaper in their countries.

Accepted Answer

A)  surpluses; depreciate 
B)  deficits; depreciate 
C)  surpluses; appreciate 
D)  deficits; appreciate

Question 10

Under the current managed float exchange rate regime, countries with balance of payments deficits frequently do not want to see their currencies depreciate because it makes ________ goods more expensive for ________ consumers and can stimulate inflation.

Accepted Answer

A)  foreign; foreign 
B)  foreign; domestic 
C)  domestic; foreign 
D)  domestic; domestic

Question 11

Both France and the United Kingdom successfully used exchange-rate targeting to lower inflation in the late 1980s and early 1990s by tying the value of their currencies to the ________.

Accepted Answer

A)  American dollar 
B)  German mark 
C)  Swiss franc 
D)  Euro

Question 12

Suppose that the Bank of Japan buys Canadian dollar assets with yen-denominated assets. Everything else held constant, this transaction will cause ________ in the foreign assets held by the Bank of Canada and ________ in the Canadian monetary base.

Accepted Answer

A)  an increase; an increase 
B)  an increase; a decrease 
C)  a decrease; an increase 
D)  a decrease; a decrease

Question 13

Under a fixed exchange rate regime, if the domestic currency is initially ________, that is, ________ par, the central bank must intervene to sell the domestic currency by purchasing foreign assets.

Accepted Answer

A)  overvalued; below 
B)  overvalued; above 
C)  undervalued; below 
D)  undervalued; above

Question 14

If a central bank does not want to see its currency ________ in value, it may pursue expansionary monetary policy to lower the domestic interest rate, thereby ________ its currency.

Accepted Answer

A)  fall; strengthening 
B)  fall; weakening 
C)  rise; strengthening 
D)  rise; weakening

Question 15

Under the Bretton Woods system, a country running a balance of payments surplus ________ international reserves, and had to implement ________ monetary policy to weaken its currency.

Accepted Answer

A)  lost; expansionary 
B)  lost; contractionary 
C)  gained; expansionary 
D)  gained; contractionary

Question 16

Under the current managed float exchange rate regime; countries with surpluses in their balance of payments frequently do not want to see their currencies appreciate because it makes their goods ________ expensive abroad and foreign goods ________ in their countries.

Accepted Answer

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

Question 17

Explain what is the unsterilized foreign exchange intervention.

Accepted Answer

The answer of Explain what is the unsterilized foreign exchange...

Question 18

A central bank's attempt to prevent an appreciation of its currency can stimulate domestic inflation if the ________ of its currency leads to ________ international reserves which ________ the monetary base.

Accepted Answer

A)  purchase; higher; increases 
B)  purchase; lower; decreases 
C)  sale; lower; decreases 
D)  sale; higher; increases

Question 19

Under a fixed exchange rate regime, a central bank that does not want to acquire international reserves to keep its currency from ________ will decide to ________ its currency.

Accepted Answer

A)  depreciating; revalue 
B)  depreciating; devalue 
C)  appreciating; revalue 
D)  appreciating; devalue

Question 20

The monetary policy strategy that does not allow the policy to focus on domestic considerations is ________.

Accepted Answer

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

Exam 19: The International Financial System

When the domestic currency is initially overvalued in a fixed exchange rate regime, the central bank must intervene in the foreign exchange market to the domestic currency, thereby allowing the money supply to .

Which of the following does not appear in the current account part of the balance of payments?

Policymakers in a country with a balance of payments surplus may not want to see their country's currency appreciate because this would ________.

Everything else held constant, if a central bank makes an unsterilized of foreign assets, then the domestic money supply will and the domestic currency will depreciate.

Under the Bretton Woods system, when a country adopted an expansionary monetary policy, thereby causing a balance of payments , the country would eventually be forced to implement monetary policy.

The monetary policy strategy that provides an automatic rule for the conduct of monetary policy is ________.

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

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.

Under the current managed float exchange rate regime, countries with in their balance of payments frequently do not want to see their currencies because it makes their goods more expensive abroad and foreign goods cheaper in their countries.

Under the current managed float exchange rate regime, countries with balance of payments deficits frequently do not want to see their currencies depreciate because it makes goods more expensive for consumers and can stimulate inflation.

Both France and the United Kingdom successfully used exchange-rate targeting to lower inflation in the late 1980s and early 1990s by tying the value of their currencies to the ________.

Suppose that the Bank of Japan buys Canadian dollar assets with yen-denominated assets. Everything else held constant, this transaction will cause in the foreign assets held by the Bank of Canada and in the Canadian monetary base.

Under a fixed exchange rate regime, if the domestic currency is initially , that is, par, the central bank must intervene to sell the domestic currency by purchasing foreign assets.

If a central bank does not want to see its currency in value, it may pursue expansionary monetary policy to lower the domestic interest rate, thereby its currency.

Under the Bretton Woods system, a country running a balance of payments surplus international reserves, and had to implement monetary policy to weaken its currency.

Under the current managed float exchange rate regime; countries with surpluses in their balance of payments frequently do not want to see their currencies appreciate because it makes their goods expensive abroad and foreign goods in their countries.

Explain what is the unsterilized foreign exchange intervention.

A central bank's attempt to prevent an appreciation of its currency can stimulate domestic inflation if the of its currency leads to international reserves which the monetary base.

Under a fixed exchange rate regime, a central bank that does not want to acquire international reserves to keep its currency from will decide to its currency.

The monetary policy strategy that does not allow the policy to focus on domestic considerations is ________.