Question 1

Under the Exchange Rate Mechanism of the European Monetary System,when the German mark depreciated below its lower limit against the British pound,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 2

The account that shows international transactions involving currently produced goods and services is called the

Accepted Answer

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

Question 3

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 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 appreciate.

Accepted Answer

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

Question 5

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 6

A case for capital inflow controls can be made because capital inflows

Accepted Answer

A) can cause a lending boom and lead to excessive risk taking. 
B) never finance productive investments. 
C) always finance productive investments. 
D) are less likely to cause financial crises than regulation of banking activities.

Question 7

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 8

Countries with surpluses in their balance of payments frequently do not want to see their currencies ________ because it makes their goods ________ expensive abroad.

Accepted Answer

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

Question 9

Under a gold standard in which one dollar could be turned in to the U.S.Treasury and exchanged for 1/20th of an ounce of gold and one German mark could be exchanged for 1/100th of an ounce of gold,an exchange rate of ________ marks to the dollar would stimulate a flow of gold from the United States to Germany.

Accepted Answer

A) 7 
B) 6 
C) 5 
D) 4

Question 10

In the early 1970s,the U.S.ran large balance of payments ________,causing an ________ dollar and an ________ German mark.

Accepted Answer

A) deficits;undervalued;overvalued 
B) deficits;overvalued;undervalued 
C) surpluses;undervalued;overvalued 
D) surpluses;overvalued;undervalued

Question 11

In September 1992,the Bundesbank attempted to keep the mark from appreciating relative to the British pound,but it failed because participants in the foreign exchange market came to expect the

Accepted Answer

A) appreciation of the mark. 
B) depreciation of the mark. 
C) revaluation of the dollar. 
D) end of the Exchange Rate Mechanism.

Question 12

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 13

Under a fixed exchange rate regime,if a central bank must intervene to purchase the domestic currency by selling foreign assets,then,like an open market sale,this action ________ the monetary base and the money supply,causing the interest rate on domestic assets to ________.

Accepted Answer

A) increases;rise 
B) increases;fall 
C) reduces;rise 
D) reduces;fall

Question 14

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) U.S.dollar. 
B) German mark. 
C) Swiss franc. 
D) Euro.

Question 15

Under a fixed exchange rate regime,a country that depletes its international reserves in an attempt to keep its currency from ________ will be forced to ________ its currency.

Accepted Answer

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

Question 16

Explain an additional disadvantage for a country undergoing dollarization compared to a currency board or other exchange-rate targeting regimes.

Accepted Answer

The answer of Explain an additional disadvantage for a country...

Question 17

Assume that a fixed exchange rate is overvalued.Describe the situation of a speculative crisis against this currency.What can the central bank do to defend the currency? Why might the alternative of devaluation be preferable?

Accepted Answer

The answer of Assume that a fixed exchange rate is...

Question 18

Countries with balance of payments deficits do not want to see their currencies ________ because it makes foreign goods ________ expensive for domestic consumers.

Accepted Answer

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

Question 19

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

Accepted Answer

A) increase;appreciate 
B) increase;depreciate 
C) decrease;appreciate 
D) decrease;depreciate

Question 20

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

Accepted Answer

A) depreciating;gain 
B) depreciating;loss 
C) appreciating;gain 
D) appreciating;loss

Exam 18: The International Financial System

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

The account that shows international transactions involving currently produced goods and services is called the

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.

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 appreciate.

A case for capital inflow controls can be made because capital inflows

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.

Countries with surpluses in their balance of payments frequently do not want to see their currencies because it makes their goods expensive abroad.

In the early 1970s,the U.S.ran large balance of payments ,causing an dollar and an German mark.

In September 1992,the Bundesbank attempted to keep the mark from appreciating relative to the British pound,but it failed because participants in the foreign exchange market came to expect the

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

Under a fixed exchange rate regime,if a central bank must intervene to purchase the domestic currency by selling foreign assets,then,like an open market sale,this action the monetary base and the money supply,causing the interest rate on domestic assets to .

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

Under a fixed exchange rate regime,a country that depletes its international reserves in an attempt to keep its currency from will be forced to its currency.

Explain an additional disadvantage for a country undergoing dollarization compared to a currency board or other exchange-rate targeting regimes.

Assume that a fixed exchange rate is overvalued.Describe the situation of a speculative crisis against this currency.What can the central bank do to defend the currency? Why might the alternative of devaluation be preferable?

Countries with balance of payments deficits do not want to see their currencies because it makes foreign goods expensive for domestic consumers.

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

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