Question 1

Under a fixed exchange rate system,countries that ran large,persistent balance of payments deficits would ________ international reserves,thereby pressuring them into ________ their exchange rate.

Accepted Answer

A)  gain; devaluing 
B)  gain; revaluing 
C)  lose; devaluing 
D)  lose; revaluing

Question 2

Which of the following is not a disadvantage of exchange-rate targeting?

Accepted Answer

A)  It relies on a stable money-inflation relationship. 
B)  The targeting country gives up an independent monetary policy. 
C)  The targeting country is left open for a speculative attack. 
D)  It can weaken the accountability of policymakers.

Question 3

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 4

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 5

Explain the 1992 crisis that led to the breakdown of the European Union's Exchange Rate Mechanism.What disadvantages of exchange-rate targeting were exhibited during this crisis?

Accepted Answer

The answer of Explain the 1992 crisis that led to...

Question 6

If a central bank does not want to allow the domestic currency to appreciate,it will ________ international reserves by selling its currency,thereby ________ the monetary base and increasing the risk of higher inflation.

Accepted Answer

A)  lose; decreasing 
B)  lose; increasing 
C)  acquire; decreasing 
D)  acquire; increasing

Question 7

The revenue a government gains from issuing money is ________.

Accepted Answer

A)  interest 
B)  rent 
C)  seignorage 
D)  the national dividend 
E)  the inflation tax

Question 8

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 9

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 10

Explain what is the unsterilized foreign exchange intervention.

Accepted Answer

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

Question 11

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 12

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

Accepted Answer

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

Question 13

Explain how an unsterilized purchase of foreign assets impacts the exchange rate everything else held constant.

Accepted Answer

The answer of Explain how an unsterilized purchase of foreign...

Question 14

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 15

Since the abandonment of the Bretton Woods system,balance of payments considerations have become ________ important,and exchange rate considerations ________ important in the conduct of monetary policy.

Accepted Answer

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

Question 16

Critics of the IMF contend that its lending in the Mexican crisis,which was used to bail out foreign ________,set the stage for the ________ crisis because these ________ expected to be bailed out if things went wrong.

Accepted Answer

A)  lenders; East Asian; borrowers 
B)  lenders; East Asian; lenders 
C)  borrowers; Russian; borrowers 
D)  borrowers; Russian; lenders

Question 17

Everything else held constant,if a central bank makes a sterilized sale 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 18

What is the gold standard? What are the pros and cons of this system?

Accepted Answer

The answer of What is the gold standard? What are...

Question 19

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

Question 20

An ECU was ________.

Accepted Answer

A)  a paper substitute for gold issued by the IMF 
B)  a loan by European countries to the IMF 
C)  a paper currency issued by the European Common Market 
D)  a monetary unit created by the European Monetary System

Exam 20: The International Financial System

Under a fixed exchange rate system,countries that ran large,persistent balance of payments deficits would international reserves,thereby pressuring them into their exchange rate.

Which of the following is not a disadvantage of exchange-rate targeting?

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 ________.

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

Explain the 1992 crisis that led to the breakdown of the European Union's Exchange Rate Mechanism.What disadvantages of exchange-rate targeting were exhibited during this crisis?

If a central bank does not want to allow the domestic currency to appreciate,it will international reserves by selling its currency,thereby the monetary base and increasing the risk of higher inflation.

The revenue a government gains from issuing money is ________.

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 .

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?

Explain what is the unsterilized foreign exchange intervention.

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 .

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