Question 1

The official reserve transactions balance

Accepted Answer

A) equals the current account balance plus the items in the capital account. 
B) tells us the net amount of international reserves that must move between central banks in order to finance international transactions. 
C) has an important impact on the money supply. 
D) is all of the above.

Question 2

If the current account balance shows a surplus, and capital account receipts exceed capital account payments, then the net change in government international reserves must be ________, indicating a(n)________ in U.S. international reserves.

Accepted Answer

A) positive; increase 
B) negative; increase 
C) negative; decrease 
D) positive; decrease

Question 3

If a country's central bank eventually runs out of international reserves, it cannot keep its currency from ________ and a ________ must occur in which the par exchange value is reset at a ________ level.

Accepted Answer

A) appreciating; revaluation; higher 
B) depreciating; revaluation; higher 
C) depreciating; devaluation; lower 
D) appreciating; devaluation; lower

Question 4

Under a fixed exchange rate system,

Accepted Answer

A) an anchor country loses control over its monetary policy. 
B) a country that ties its currency to that of another country gains control of the other country's monetary policy. 
C) a country that ties its currency to that of another country loses control over its monetary policy. 
D) a country that ties its currency to that of another country acquires greater control over its monetary policy.

Question 5

(I)Controls on capital outflows may increase capital flight by weakening confidence in the government. (II)Controls on capital outflows are an inadequate substitute for financial reform to deal with currency crises.

Accepted Answer

A) (I)is true; (II)false. 
B) (I)is false; (II)true. 
C) Both are true. 
D) Both are false.

Question 6

An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to a gain in international reserves.

Accepted Answer

A) True 
 B)False

Question 7

The current account balance plus the capital account balance equals the net change in government international reserves.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

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

Question 9

How does a sterilized foreign exchange intervention differ from an unsterilized one in terms of its effects on the exchange rate, international reserves, and the monetary base?

Accepted Answer

The answer of How does a sterilized foreign exchange intervention...

Question 10

A Federal Reserve decision to sell dollars in order to buy foreign assets in the foreign exchange market has the same effect as an open market ________ of bonds to ________ the monetary base and the money supply.

Accepted Answer

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

Question 11

________ is when the domestic currency is backed 100% by a foreign currency and in which the note-issuing authority establishes a fixed exchange rate to this foreign currency and stands ready to exchange domestic currency for the foreign currency at this rate whenever the public requests it.

Accepted Answer

A) dollarization 
B) currency board 
C) devaluation 
D) revaluation

Question 12

Because sterilized interventions mean offsetting open market operations, there is no impact on the monetary base and the money supply, and therefore a sterilized intervention

Accepted Answer

A) causes the exchange rate to overshoot in the short run. 
B) causes the exchange rate to undershoot in the short run. 
C) causes the exchange rate to depreciate in the short run, but has no effect on the exchange rate in the long run. 
D) has no effect on the exchange rate.

Question 13

Because sterilized interventions mean offsetting open market operations,

Accepted Answer

A) there is no impact on the monetary base. 
B) there is no impact on the money supply. 
C) there is no effect on the exchange rate. 
D) all of the above occur. 
E) only A and B of the above occur.

Question 14

Many believe that the statistical discrepancy is primarily the result of

Accepted Answer

A) large hidden capital flows into the United States. 
B) large hidden capital flows out of the United States. 
C) measurement errors due to exchange rate calculations. 
D) none of the above.

Question 15

The Bretton Woods system was a fixed exchange rate regime in which central banks bought and sold their own currencies to keep their exchange rates fixed.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following are true statements about the Bretton Woods system?

Accepted Answer

A) The Bretton Woods system was a fixed exchange rate regime, in which central banks bought and sold their own currencies to keep their exchange rates fixed. 
B) To maintain fixed exchange rates when countries had balance of payments deficits and were losing international reserves, the IMF would loan deficit countries international reserves contributed by other members. 
C) The German mark was called a reserve currency because it was used to denominate the securities central banks held as international reserves. 
D) All of the above are true. 
E) Only A and B of the above are true.

Question 17

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 18

Under dollarization, a country

Accepted Answer

A) backs its currency 100 percent with foreign reserves. 
B) earns seigniorage because it no longer bears the cost of issuing its own currency. 
C) abandons its own currency and adopts the money of another country. 
D) must worry about a speculative attack on its currency.

Question 19

An argument that supports the view that the world needs an international lender of last resort such as the IMF is that

Accepted Answer

A) central banks in emerging-market countries lack credibility as inflation fighters. 
B) an international lender of last resort creates a safety net that protects bank depositors. 
C) the IMF is slow to lend, which ultimately reduces the amount that must be borrowed. 
D) the IMF imposes requirements that borrowing countries must enact microeconomic policies to reform their financial systems.

Question 20

When the central bank allows the purchase or sale of domestic currency to have an effect on the monetary base, it is called

Accepted Answer

A) a sterilized foreign exchange intervention. 
B) an unsterilized foreign exchange intervention. 
C) an exchange rate feedback rule. 
D) a money-neutral foreign exchange intervention.

Exam 16: The International Financial System

The official reserve transactions balance

If the current account balance shows a surplus, and capital account receipts exceed capital account payments, then the net change in government international reserves must be , indicating a(n) in U.S. international reserves.

If a country's central bank eventually runs out of international reserves, it cannot keep its currency from and a must occur in which the par exchange value is reset at a level.

Under a fixed exchange rate system,

(I) Controls on capital outflows may increase capital flight by weakening confidence in the government. (II) Controls on capital outflows are an inadequate substitute for financial reform to deal with currency crises.

An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to a gain in international reserves.

The current account balance plus the capital account balance equals the net change in government international reserves.

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

How does a sterilized foreign exchange intervention differ from an unsterilized one in terms of its effects on the exchange rate, international reserves, and the monetary base?

A Federal Reserve decision to sell dollars in order to buy foreign assets in the foreign exchange market has the same effect as an open market of bonds to the monetary base and the money supply.

________ is when the domestic currency is backed 100% by a foreign currency and in which the note-issuing authority establishes a fixed exchange rate to this foreign currency and stands ready to exchange domestic currency for the foreign currency at this rate whenever the public requests it.

Because sterilized interventions mean offsetting open market operations, there is no impact on the monetary base and the money supply, and therefore a sterilized intervention

Because sterilized interventions mean offsetting open market operations,

Many believe that the statistical discrepancy is primarily the result of

The Bretton Woods system was a fixed exchange rate regime in which central banks bought and sold their own currencies to keep their exchange rates fixed.

Which of the following are true statements about the Bretton Woods system?

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

Under dollarization, a country

An argument that supports the view that the world needs an international lender of last resort such as the IMF is that

When the central bank allows the purchase or sale of domestic currency to have an effect on the monetary base, it is called

Exam 16: The International Financial System

The official reserve transactions balance

If the current account balance shows a surplus, and capital account receipts exceed capital account payments, then the net change in government international reserves must be ________, indicating a(n) ________ in U.S. international reserves.

If a country's central bank eventually runs out of international reserves, it cannot keep its currency from ________ and a ________ must occur in which the par exchange value is reset at a ________ level.

Under a fixed exchange rate system,

(I) Controls on capital outflows may increase capital flight by weakening confidence in the government. (II) Controls on capital outflows are an inadequate substitute for financial reform to deal with currency crises.

An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to a gain in international reserves.

The current account balance plus the capital account balance equals the net change in government international reserves.

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

How does a sterilized foreign exchange intervention differ from an unsterilized one in terms of its effects on the exchange rate, international reserves, and the monetary base?

A Federal Reserve decision to sell dollars in order to buy foreign assets in the foreign exchange market has the same effect as an open market ________ of bonds to ________ the monetary base and the money supply.

________ is when the domestic currency is backed 100% by a foreign currency and in which the note-issuing authority establishes a fixed exchange rate to this foreign currency and stands ready to exchange domestic currency for the foreign currency at this rate whenever the public requests it.

Because sterilized interventions mean offsetting open market operations, there is no impact on the monetary base and the money supply, and therefore a sterilized intervention

Because sterilized interventions mean offsetting open market operations,

Many believe that the statistical discrepancy is primarily the result of

The Bretton Woods system was a fixed exchange rate regime in which central banks bought and sold their own currencies to keep their exchange rates fixed.

Which of the following are true statements about the Bretton Woods system?

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

Under dollarization, a country

An argument that supports the view that the world needs an international lender of last resort such as the IMF is that

When the central bank allows the purchase or sale of domestic currency to have an effect on the monetary base, it is called

If the current account balance shows a surplus, and capital account receipts exceed capital account payments, then the net change in government international reserves must be , indicating a(n) in U.S. international reserves.

If a country's central bank eventually runs out of international reserves, it cannot keep its currency from and a must occur in which the par exchange value is reset at a level.

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

A Federal Reserve decision to sell dollars in order to buy foreign assets in the foreign exchange market has the same effect as an open market of bonds to the monetary base and the money supply.