Question 1

Most developing countries have chosen to allow their currencies to float independently in the foreign exchange market.

Accepted Answer

A) True 
 B)False  False

Question 2

Exchange rate controls

Accepted Answer

A)   Achieved prominence during the economic crises of the late 1930's
B)   Were popular immediately after World War II
C)   Are widely used by the developing nations
D)   All of the above D

Question 3

Large industrial nations with diversified economies and small trade sectors have generally pegged their currencies to one of the world's key currencies.

Accepted Answer

A) True 
 B)False  False

Question 4

To temporarily offset an appreciation in the dollar's exchange value,the Federal Reserve could ____ the U.S.money supply which would promote a (an)____ in U.S.interest rates and a ____ in investment flows to the United States.

Accepted Answer

A)   Increase,decrease,decrease
B)   Increase,increase,decrease
C)   Decrease,decrease,decrease
D)   Decrease,increase,decrease

Question 5

If the Japanese yen appreciates against other currencies in the exchange markets,this will:

Accepted Answer

A)   Have no effect on the Japanese balance of trade
B)   Tend to improve the Japanese balance of trade
C)   Tend to worsen the Japanese balance of trade
D)   None of the above

Question 6

Given an initial equilibrium in the money market and foreign exchange market,suppose the Federal Reserve decreases the money supply of the United States.Under a floating exchange rate system,the dollar would:

Accepted Answer

A)   Appreciate in value relative to other currencies
B)   Depreciate in value relative to other currencies
C)   Be officially devalued by the government
D)   Be officially revalued by the government

Question 7

Unlike floating exchange rates,fixed exchange rates are not characterized by par values and central bank intervention in the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 8

Under managed floating exchange rates,central bank intervention is used to offset temporary fluctuations in exchange rates that contribute to uncertainty in carrying out transactions in international trade and finance.

Accepted Answer

A) True 
 B)False

Question 9

Under managed floating exchange rates,a central bank would initiate:

Accepted Answer

A)   Contractionary monetary policy to offset a depreciation of its currency
B)   Contractionary monetary policy to offset an appreciation of its currency
C)   Expansionary monetary policy to offset a depreciation of its currency
D)   None of the above

Question 10

Under a floating exchange rate system,an increase in U.S.imports of Japanese goods will cause the demand schedule for Japanese yen to:

Accepted Answer

A)   Increase,inducing a depreciation in the yen
B)   Decrease,inducing a depreciation in the yen
C)   Increase,inducing an appreciation in the yen
D)   Decrease,inducing an appreciation in the yen

Question 11

A "dirty float" occurs when a nation used central bank intervention in the foreign exchange market to promote a depreciation of its currency's exchange value,thus gaining a competitive advantage compared to its trading partners.

Accepted Answer

A) True 
 B)False

Question 12

Today,fixed exchange rates are used primarily by small,developing countries that tie their currencies to a key currency such as the U.S.dollar.

Accepted Answer

A) True 
 B)False

Question 13

Under an adjustable-pegged system,market exchange rates are intended to be maintained within a narrow band around a currency's official exchange rate.In the case of fundamental disequilibrium,the currency can be devalued or revalued to promote current-account equilibrium.

Accepted Answer

A) True 
 B)False

Question 14

Under a floating exchange-rate system,if American exports increase and American imports fall,the value of the dollar will:

Accepted Answer

A)   Appreciate
B)   Depreciate
C)   Be officially revalued
D)   Be officially devalued

Question 15

When pursued over the long run,a policy of increasing the domestic money supply to offset an appreciation of the home country's currency results in inflation and a decrease in home-country competitiveness in key industries.

Accepted Answer

A) True 
 B)False

Question 16

Figure 15.2 Market for the British Pound 
-Refer to Figure 15.2.Suppose the demand for pounds increases from D0 to D1.Under a fixed exchange rate system,the U.S.exchange stabilization fund could maintain a fixed exchange rate of $0.80 per pound by:

Accepted Answer

A)   Selling pounds for dollars on the foreign exchange market
B)   Selling dollars for pounds on the foreign exchange market
C)   Decreasing U.S.exports,thus decreasing the supply of pounds
D)   Stimulating U.S.imports,thus increasing the demand for pounds

Question 17

Because there is no exchange stabilization fund under floating exchange rates,any holdings of international reserves serve as working balances rather than to maintain a given exchange rate for any currency.

Accepted Answer

A) True 
 B)False

Question 18

Since 1974,the major industrial countries have operated under a system of fixed exchange rates based on the gold standard.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is not a potential disadvantage of freely floating exchange rates?

Accepted Answer

A)   They require larger amounts of international reserves than other exchange systems
B)   Demand schedules for imports and exports may be price speculation
C)   There may occur large amounts of destabilizing speculation
D)   Capital movements among nations may be hindered via exchange rate fluctuations

Question 20

Under a floating exchange rate system,if there occurs a fall in the dollar price of the franc:

Accepted Answer

A)   American exports to France will be cheaper in francs
B)   American exports to France will be more expensive in francs
C)   American imports from France will be more expensive in dollars
D)   None of the above

Exam 15: Exchange-Rate Systems and Currency Crises

Most developing countries have chosen to allow their currencies to float independently in the foreign exchange market.

Exchange rate controls

Large industrial nations with diversified economies and small trade sectors have generally pegged their currencies to one of the world's key currencies.

To temporarily offset an appreciation in the dollar's exchange value,the Federal Reserve could the U.S.money supply which would promote a (an) in U.S.interest rates and a in investment flows to the United States.

If the Japanese yen appreciates against other currencies in the exchange markets,this will:

Given an initial equilibrium in the money market and foreign exchange market,suppose the Federal Reserve decreases the money supply of the United States.Under a floating exchange rate system,the dollar would:

Unlike floating exchange rates,fixed exchange rates are not characterized by par values and central bank intervention in the foreign exchange market.

Under managed floating exchange rates,central bank intervention is used to offset temporary fluctuations in exchange rates that contribute to uncertainty in carrying out transactions in international trade and finance.

Under managed floating exchange rates,a central bank would initiate:

Under a floating exchange rate system,an increase in U.S.imports of Japanese goods will cause the demand schedule for Japanese yen to:

A "dirty float" occurs when a nation used central bank intervention in the foreign exchange market to promote a depreciation of its currency's exchange value,thus gaining a competitive advantage compared to its trading partners.

Today,fixed exchange rates are used primarily by small,developing countries that tie their currencies to a key currency such as the U.S.dollar.

Under an adjustable-pegged system,market exchange rates are intended to be maintained within a narrow band around a currency's official exchange rate.In the case of fundamental disequilibrium,the currency can be devalued or revalued to promote current-account equilibrium.

Under a floating exchange-rate system,if American exports increase and American imports fall,the value of the dollar will:

When pursued over the long run,a policy of increasing the domestic money supply to offset an appreciation of the home country's currency results in inflation and a decrease in home-country competitiveness in key industries.

Figure 15.2 Market for the British Pound -Refer to Figure 15.2.Suppose the demand for pounds increases from D₀ to D₁.Under a fixed exchange rate system,the U.S.exchange stabilization fund could maintain a fixed exchange rate of $0.80 per pound by:

Because there is no exchange stabilization fund under floating exchange rates,any holdings of international reserves serve as working balances rather than to maintain a given exchange rate for any currency.

Since 1974,the major industrial countries have operated under a system of fixed exchange rates based on the gold standard.

Which of the following is not a potential disadvantage of freely floating exchange rates?

Under a floating exchange rate system,if there occurs a fall in the dollar price of the franc:

Exam 15: Exchange-Rate Systems and Currency Crises

Most developing countries have chosen to allow their currencies to float independently in the foreign exchange market.

Exchange rate controls

Large industrial nations with diversified economies and small trade sectors have generally pegged their currencies to one of the world's key currencies.

To temporarily offset an appreciation in the dollar's exchange value,the Federal Reserve could ____ the U.S.money supply which would promote a (an) ____ in U.S.interest rates and a ____ in investment flows to the United States.

If the Japanese yen appreciates against other currencies in the exchange markets,this will:

Given an initial equilibrium in the money market and foreign exchange market,suppose the Federal Reserve decreases the money supply of the United States.Under a floating exchange rate system,the dollar would:

Unlike floating exchange rates,fixed exchange rates are not characterized by par values and central bank intervention in the foreign exchange market.

Under managed floating exchange rates,central bank intervention is used to offset temporary fluctuations in exchange rates that contribute to uncertainty in carrying out transactions in international trade and finance.

Under managed floating exchange rates,a central bank would initiate:

Under a floating exchange rate system,an increase in U.S.imports of Japanese goods will cause the demand schedule for Japanese yen to:

A "dirty float" occurs when a nation used central bank intervention in the foreign exchange market to promote a depreciation of its currency's exchange value,thus gaining a competitive advantage compared to its trading partners.

Today,fixed exchange rates are used primarily by small,developing countries that tie their currencies to a key currency such as the U.S.dollar.

Under an adjustable-pegged system,market exchange rates are intended to be maintained within a narrow band around a currency's official exchange rate.In the case of fundamental disequilibrium,the currency can be devalued or revalued to promote current-account equilibrium.

Under a floating exchange-rate system,if American exports increase and American imports fall,the value of the dollar will:

When pursued over the long run,a policy of increasing the domestic money supply to offset an appreciation of the home country's currency results in inflation and a decrease in home-country competitiveness in key industries.

Figure 15.2 Market for the British Pound -Refer to Figure 15.2.Suppose the demand for pounds increases from D0 to D1.Under a fixed exchange rate system,the U.S.exchange stabilization fund could maintain a fixed exchange rate of $0.80 per pound by:

Because there is no exchange stabilization fund under floating exchange rates,any holdings of international reserves serve as working balances rather than to maintain a given exchange rate for any currency.

Since 1974,the major industrial countries have operated under a system of fixed exchange rates based on the gold standard.

Which of the following is not a potential disadvantage of freely floating exchange rates?

Under a floating exchange rate system,if there occurs a fall in the dollar price of the franc:

To temporarily offset an appreciation in the dollar's exchange value,the Federal Reserve could the U.S.money supply which would promote a (an) in U.S.interest rates and a in investment flows to the United States.

Figure 15.2 Market for the British Pound -Refer to Figure 15.2.Suppose the demand for pounds increases from D₀ to D₁.Under a fixed exchange rate system,the U.S.exchange stabilization fund could maintain a fixed exchange rate of $0.80 per pound by: