Question 1

Other things equal, under a floating exchange rate system, if American exports increase and American imports decrease, the value of the dollar will likely

Accepted Answer

A)   appreciate.
B)   depreciate.
C)   be officially revalued.
D)   neither appreciate not depreciate. A

Question 2

When the United States abandoned the Bretton Woods system in 1973, it adopted a system of

Accepted Answer

A)   managed floating exchange rates.
B)   freely fluctuating exchange rates.
C)   adjustable pegged exchange rates.
D)   crawling pegged exchange rates. A

Question 3

How can currency boards and dollarization prevent currency crises?

Accepted Answer

A currency board is a monetary authority that issues notes and coins convertible into a foreign currency at a fixed exchange rate. The most vital contribution a currency board can make to exchange rate stability is to impose discipline on the process of money creation. This results in greater stability on domestic prices, which, in turn, stabilizes the value of the domestic currency. Dollarization occurs when residents of a county use the U.S. dollar alongside or instead of their own currency. Dollarization is seen as a way to protect a country's growth and prosperity from bouts of inflation, currency depreciation, and speculative attacks against the local currency.

Question 4

Figure 15.2 Market for the British Pound 
-Refer to Figure 15.2.Suppose the United States decreases financial investment in England.Other things equal, under a floating exchange rate system the new equilibrium exchange rate would be

Accepted Answer

A)   $0.40 per franc.
B)   $0.60 per franc.
C)   $0.80 per franc.
D)   $1 per franc.

Question 5

Under a system of floating exchange rates, other things equal, a U.S.trade deficit with Japan will cause

Accepted Answer

A)   a flow of gold from the United States to Japan.
B)   the U.S. government to ration yen to U.S. importers.
C)   an increase in the dollar price of yen.
D)   a decrease in the dollar price of yen.

Question 6

Which exchange rate mechanism is intended to insulate the balance of payments from short-term capital movements while providing exchange rate stability for commercial transactions?

Accepted Answer

A)   dual exchange rates
B)   managed floating exchange rates
C)   adjustable pegged exchange rates
D)   crawling pegged exchange rates

Question 7

Why can't a nation adopt free capital flows, a fixed exchange rate, and an independent monetary policy at the same time?

Accepted Answer

The answer of Why can't a nation adopt free capital...

Question 8

To defend a pegged exchange rate that overvalues its currency, a country could

Accepted Answer

A)   discourage commodity exports.
B)   encourage commodity imports.
C)   purchase its own currency in international markets.
D)   sell its own currency in international markets.

Question 9

Under managed floating exchange rates, other things equal, the Federal Reserve could offset an appreciation of the dollar against the yen by

Accepted Answer

A)   increasing the money supply, which promotes falling interest rates and net investment outflows.
B)   increasing the money supply, which promotes rising interest rates and net investment inflows.
C)   decreasing the money supply, which promotes falling interest rates and net investment outflows.
D)   decreasing the money supply, which promotes rising interest rates and net investment inflows.

Question 10

According to the Bretton Woods system of 1944-1973, the United States was designated as the

Accepted Answer

A)   par value country.
B)   floating exchange rate country.
C)   reserve currency country.
D)   liquidity deficit country.

Question 11

A ______ is a type of a fixed exchange rate system in which the commitment to the fixed exchange rate is very firm

Accepted Answer

A)   currency board
B)   monetary policy board
C)   fiscal policy board
D)   customs board

Question 12

Pegging to a single currency is generally done by developing nations whose trade and financial relationships are mainly with a single industrial-country partner.

Accepted Answer

A) True 
 B)False

Question 13

Small nations, such as Angola and Barbados, peg their currencies to the U.S.dollar since the prices of many of their traded goods are determined in markets in which the dollar is the key currency.

Accepted Answer

A) True 
 B)False

Question 14

With fixed exchange rates, assume that the home currency becomes undervalued relative to its par value.Other things equal, to maintain the fixed exchange rate, the home country's central bank must

Accepted Answer

A)   purchase the home currency, and as a result it loses international reserves.
B)   purchase the home currency, and as a result it gains international reserves.
C)   sell the home currency, and as a result it loses international reserves.
D)   sell the home currency, and as a result it gains international reserves.

Question 15

In recent years, the United States has accused China of manipulating the yuan so as to gain an unfair competitive advantage in global trade.The United States has argued that the central bank of China has

Accepted Answer

A)   sold yuan and bought dollars, thus depreciating the yuan against the dollar.
B)   sold yuan and bought dollars, thus appreciating the yuan against the dollar.
C)   bought yuan and sold dollars, thus depreciating the yuan against the dollar.
D)   bought yuan and sold dollars, thus appreciating the yuan against the dollar.

Question 16

For developing countries, efforts to prevent speculation and currency crises have included

Accepted Answer

A)   controls on capital flows.
B)   more freely floating exchange rates.
C)   greater reliance on foreign capital.
D)   abandoning fixed exchange rate systems.

Question 17

Today, special drawing rights (SDRs) represent the most important currency basket against which developing countries maintain pegged exchange rates.

Accepted Answer

A) True 
 B)False

Question 18

If Mexico fully dollarizes its economy, it agrees to

Accepted Answer

A)   print pesos only to finance deficits of its national government.
B)   use the U.S. dollar alongside its peso to finance transactions.
C)   have the U.S. Treasury be in charge of its tax collections.
D)   replace pesos with U.S. dollars in its economy.

Question 19

Although controls on the outflow of capital for developing countries may be appealing, they tend to suffer from people finding ways to evade the controls and move funds out of the country.

Accepted Answer

A) True 
 B)False

Question 20

A currency board is a type of a floating exchange rate system in which the commitment to the floating exchange rate is very strong.

Accepted Answer

A) True 
 B)False

Exam 14: Exchange Rate Adjustments and the Balance of Payments

Other things equal, under a floating exchange rate system, if American exports increase and American imports decrease, the value of the dollar will likely

When the United States abandoned the Bretton Woods system in 1973, it adopted a system of

How can currency boards and dollarization prevent currency crises?

Figure 15.2 Market for the British Pound -Refer to Figure 15.2.Suppose the United States decreases financial investment in England.Other things equal, under a floating exchange rate system the new equilibrium exchange rate would be

Under a system of floating exchange rates, other things equal, a U.S.trade deficit with Japan will cause

Which exchange rate mechanism is intended to insulate the balance of payments from short-term capital movements while providing exchange rate stability for commercial transactions?

Why can't a nation adopt free capital flows, a fixed exchange rate, and an independent monetary policy at the same time?

To defend a pegged exchange rate that overvalues its currency, a country could

Under managed floating exchange rates, other things equal, the Federal Reserve could offset an appreciation of the dollar against the yen by

According to the Bretton Woods system of 1944-1973, the United States was designated as the

A ______ is a type of a fixed exchange rate system in which the commitment to the fixed exchange rate is very firm

Pegging to a single currency is generally done by developing nations whose trade and financial relationships are mainly with a single industrial-country partner.

Small nations, such as Angola and Barbados, peg their currencies to the U.S.dollar since the prices of many of their traded goods are determined in markets in which the dollar is the key currency.

With fixed exchange rates, assume that the home currency becomes undervalued relative to its par value.Other things equal, to maintain the fixed exchange rate, the home country's central bank must

In recent years, the United States has accused China of manipulating the yuan so as to gain an unfair competitive advantage in global trade.The United States has argued that the central bank of China has

For developing countries, efforts to prevent speculation and currency crises have included

Today, special drawing rights (SDRs) represent the most important currency basket against which developing countries maintain pegged exchange rates.

If Mexico fully dollarizes its economy, it agrees to

Although controls on the outflow of capital for developing countries may be appealing, they tend to suffer from people finding ways to evade the controls and move funds out of the country.

A currency board is a type of a floating exchange rate system in which the commitment to the floating exchange rate is very strong.