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

A country that dollarizes ________.

Accepted Answer

A)  maximizes its seignorage 
B)  earns the same amount of seignorage as it would with a currency board 
C)  earns the same amount of seignorage as it would with exchange-rate targeting 
D)  eliminates its seignorage 
E)  must pay seignorage to other governments to use their currency

Question 3

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 4

The World Bank is an international organization that ________.

Accepted Answer

A)  promotes the growth of trade by setting rules for how tariffs and quotas are set by countries 
B)  makes loans to countries to finance projects such as dams and roads 
C)  makes loans to countries with balance of payment difficulties 
D)  helps developing countries that have been having difficulties in repaying their loans to come to terms with lenders in the West

Question 5

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 6

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 7

A balance of payments ________ is associated with a loss of international reserves,while a balance of payments ________ is associated with a gain.

Accepted Answer

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

Question 8

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 9

Because the United States was the reserve-currency country under the Bretton Woods system,it could run large balance of payments ________ without ________ significant amounts of international reserves.

Accepted Answer

A)  deficits; losing 
B)  deficits; gaining 
C)  surpluses; losing 
D)  surpluses; gaining

Question 10

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

Accepted Answer

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

Question 11

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 12

In response to the overvalued dollar in the early 1970s,the German Bundesbank bought ________ and sold ________ to keep the exchange rate fixed,gaining international reserves.

Accepted Answer

A)  marks; dollars 
B)  marks; pounds 
C)  dollars; marks 
D)  dollars; pounds

Question 13

A balance of payments deficit is associated with a ________ of international reserves,while a balance of payments surplus is associated with a ________.

Accepted Answer

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

Question 14

Everything else held constant,if a central bank makes a sterilized purchase of foreign assets,then the domestic currency will ________.

Accepted Answer

A)  appreciate 
B)  depreciate 
C)  either appreciate, depreciate, or remain constant 
D)  not be affected

Question 15

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 16

A central bank ________ of domestic currency and corresponding ________ of foreign assets in the foreign exchange market leads to an equal increase in its international reserves and the monetary base,everything else held constant.

Accepted Answer

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

Question 17

Under exchange-rate targeting,the central bank in the targeting country ________ lose the ability to pursue its own independent monetary policy and any shocks to the anchor country is ________ transmitted to the targeting country.

Accepted Answer

A)  does; directly 
B)  does not; directly 
C)  does; not directly 
D)  does not; not directly

Question 18

The difference between merchandise exports and imports is called the ________ balance.

Accepted Answer

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

Question 19

The fixed exchange rate regime established at a meeting in New Hampshire in 1944 has been known as the ________.

Accepted Answer

A)  General Agreement on Tariffs and Trade 
B)  Bretton Woods system 
C)  International Settlement Fund 
D)  Balance of Payments Compliance Accord

Question 20

Under a gold standard in which one dollar could be turned in to the Bank of Canada 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 Canada to Germany.

Accepted Answer

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

Exam 20: 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.

A country that dollarizes ________.

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.

The World Bank is an international organization that ________.

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 .

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.

A balance of payments is associated with a loss of international reserves,while a balance of payments is associated with a gain.

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.

Because the United States was the reserve-currency country under the Bretton Woods system,it could run large balance of payments without significant amounts of international reserves.

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

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

In response to the overvalued dollar in the early 1970s,the German Bundesbank bought and sold to keep the exchange rate fixed,gaining international reserves.

A balance of payments deficit is associated with a of international reserves,while a balance of payments surplus is associated with a .

Everything else held constant,if a central bank makes a sterilized purchase of foreign assets,then the domestic currency will ________.

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

A central bank of domestic currency and corresponding of foreign assets in the foreign exchange market leads to an equal increase in its international reserves and the monetary base,everything else held constant.

Under exchange-rate targeting,the central bank in the targeting country lose the ability to pursue its own independent monetary policy and any shocks to the anchor country is transmitted to the targeting country.

The difference between merchandise exports and imports is called the ________ balance.

The fixed exchange rate regime established at a meeting in New Hampshire in 1944 has been known as the ________.