Question 1

Exchange rates will equalise purchasing power parity in the long run unless:

Accepted Answer

A) all products can be traded internationally. 
B) products do not differ across countries. 
C) countries practise free trade. 
D) countries impose barriers to trade, such as tariffs and quotas.

Question 2

Under a 'floating exchange rate', the exchange rate:

Accepted Answer

A) will change whenever the price of gold changes. 
B) is controlled by central bank intervention. 
C) is determined by the interaction of supply of the currency and demand for the currency. 
D) is pegged against the euro.

Question 3

Has the adoption of the euro by many countries in the European Union enhanced economic growth in those countries?
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Accepted Answer

The answer of Has the adoption of the euro by...

Question 4

Would we expect that purchasing power parity will hold in the long run for haircut prices between Australia and Singapore? Why or why not?
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Accepted Answer

The answer of Would we expect that purchasing power parity...

Question 5

A 'floating exchange rate system' is one in which:

Accepted Answer

A) the central bank does not intervene to adjust the exchange rate. 
B) shortages of foreign exchange will result in an appreciation of the domestic currency. 
C) foreign exchange traders accept only a fixed price for their goods, regardless of the demand and supply for the currency. 
D) the government defines its currency to be worth a certain amount in terms of another currency and ensures that the rate remains at that level.

Question 6

The three most important financial centres in the world today are New York, Beijing and Frankfurt.

Accepted Answer

A) True 
 B)False

Question 7

Refer to Figure 15.2 for the following questions.
Figure 15.2
 
-Which of the following would cause the change depicted in Figure 15.2? Note that the figure depicts the quantity of euros traded.

Accepted Answer

A) European productivity rises relative to Australian productivity. 
B) Japanese decrease their preferences for goods produced in the EU relative to Australian goods. 
C) The European Union increases its quotas on German wrist watches. 
D) The price level of goods produced in the EU increases relative to the price level of goods produced in Australia.

Question 8

A currency exchange rate system under which the currency is determined by demand and supply, and occasional government intervention is a:

Accepted Answer

A) floating currency system. 
B) fixed currency system. 
C) managed float exchange rate system. 
D) gold standard system.

Question 9

In a pegged exchange rate system, a country will peg the value of its currency to:

Accepted Answer

A) an index of the world's major currencies determined by the International Monetary Fund. 
B) an average of the historic values of its own currency. 
C) a major currency. 
D) the currencies of the countries with which it trades most frequently.

Question 10

Soon after the Australia dollar was floated, it ________ against the United States dollar and ________ against other major currencies.

Accepted Answer

A) appreciated; appreciated 
B) depreciated; appreciated 
C) appreciated; depreciated 
D) depreciated; depreciated

Question 11

If the Thai baht is pegged above the equilibrium exchange rate as expressed in United States (US)dollars per baht:

Accepted Answer

A) the currency is undervalued. 
B) the currency is overvalued. 
C) there will be a shortage of the baht. 
D) the exchange rate between the baht and the US dollar is flexible.

Question 12

Both countries involved in an exchange rate peg must agree to the peg.

Accepted Answer

A) True 
 B)False

Question 13

Describe how the 'Bretton Woods System' operated.
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Accepted Answer

The answer of Describe how the 'Bretton Woods System' operated.
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Question 14

Exchange rates under the Bretton Woods System were determined by relative supplies of gold held by countries within the system.

Accepted Answer

A) True 
 B)False

Question 15

If inflation in Australia is higher than inflation in Japan, what will happen to the exchange rate between the Australian dollar and the Japanese yen in the long run, ceteris paribus?

Accepted Answer

A) The dollar will appreciate against the yen. 
B) The dollar will depreciate against the yen. 
C) The dollar's value relative to the yen will not change. 
D) Both the dollar and the yen will appreciate.

Question 16

What is a 'pegged exchange rate' and what are the advantages to a country of having a pegged exchange rate system?
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Accepted Answer

The answer of What is a 'pegged exchange rate' and...

Question 17

Investors who sell a country's currency in anticipation of a devaluation are engaging in:

Accepted Answer

A) purchasing power parity. 
B) currency arbitrage. 
C) destabilising speculation. 
D) exchange rate manipulation.

Question 18

The Bretton Woods System was a system of ________ exchange rates against the United States dollar.

Accepted Answer

A) flexible 
B) variable 
C) floating 
D) fixed

Question 19

Australian currency continues to be backed by the gold standard to this day.

Accepted Answer

A) True 
 B)False

Question 20

If interest rates in Australia rise, ceteris paribus, the value of the Australian dollar will:

Accepted Answer

A) rise as foreign investors increase their holdings of Australian investments. 
B) rise as foreign investors decrease their holdings of Australian investments. 
C) fall as foreign investors increase their holdings of Australian investments. 
D) fall as foreign investors decrease their holdings of Australian investments.

Exam 15: The International Financial System

Exchange rates will equalise purchasing power parity in the long run unless:

Under a 'floating exchange rate', the exchange rate:

Has the adoption of the euro by many countries in the European Union enhanced economic growth in those countries? _ _

Would we expect that purchasing power parity will hold in the long run for haircut prices between Australia and Singapore? Why or why not? _ _

A 'floating exchange rate system' is one in which:

The three most important financial centres in the world today are New York, Beijing and Frankfurt.

Refer to Figure 15.2 for the following questions. Figure 15.2 -Which of the following would cause the change depicted in Figure 15.2? Note that the figure depicts the quantity of euros traded.

A currency exchange rate system under which the currency is determined by demand and supply, and occasional government intervention is a:

In a pegged exchange rate system, a country will peg the value of its currency to:

Soon after the Australia dollar was floated, it against the United States dollar and against other major currencies.

If the Thai baht is pegged above the equilibrium exchange rate as expressed in United States (US) dollars per baht:

Both countries involved in an exchange rate peg must agree to the peg.

Describe how the 'Bretton Woods System' operated. _ _

Exchange rates under the Bretton Woods System were determined by relative supplies of gold held by countries within the system.

If inflation in Australia is higher than inflation in Japan, what will happen to the exchange rate between the Australian dollar and the Japanese yen in the long run, ceteris paribus?

What is a 'pegged exchange rate' and what are the advantages to a country of having a pegged exchange rate system? _ _

Investors who sell a country's currency in anticipation of a devaluation are engaging in:

The Bretton Woods System was a system of ________ exchange rates against the United States dollar.

Australian currency continues to be backed by the gold standard to this day.

If interest rates in Australia rise, ceteris paribus, the value of the Australian dollar will:

Exam 15: The International Financial System

Exchange rates will equalise purchasing power parity in the long run unless:

Under a 'floating exchange rate', the exchange rate:

A 'floating exchange rate system' is one in which:

The three most important financial centres in the world today are New York, Beijing and Frankfurt.

Refer to Figure 15.2 for the following questions. Figure 15.2 -Which of the following would cause the change depicted in Figure 15.2? Note that the figure depicts the quantity of euros traded.

A currency exchange rate system under which the currency is determined by demand and supply, and occasional government intervention is a:

In a pegged exchange rate system, a country will peg the value of its currency to:

Soon after the Australia dollar was floated, it ________ against the United States dollar and ________ against other major currencies.

If the Thai baht is pegged above the equilibrium exchange rate as expressed in United States (US) dollars per baht:

Both countries involved in an exchange rate peg must agree to the peg.

Describe how the 'Bretton Woods System' operated. _____________________________________________________________________________________________ _____________________________________________________________________________________________

Exchange rates under the Bretton Woods System were determined by relative supplies of gold held by countries within the system.

If inflation in Australia is higher than inflation in Japan, what will happen to the exchange rate between the Australian dollar and the Japanese yen in the long run, ceteris paribus?

Investors who sell a country's currency in anticipation of a devaluation are engaging in:

The Bretton Woods System was a system of ________ exchange rates against the United States dollar.

Australian currency continues to be backed by the gold standard to this day.

If interest rates in Australia rise, ceteris paribus, the value of the Australian dollar will:

Soon after the Australia dollar was floated, it against the United States dollar and against other major currencies.

Describe how the 'Bretton Woods System' operated. _ _