Question 1

The "impossible trinity" should the relationship between

Accepted Answer

A)  free movements of international capital 
B)  independent monetary policies of countries 
C)  fixed exchange rate systems of countries 
D)  all of the above 
A)  free movements of international capital 
B)  independent monetary policies of countries 
C)  fixed exchange rate systems of countries 
D)  all of the above

Question 2

Most nations currently allow their currencies' exchange values to be determined solely by the forces of supply and demand in a free market.

Accepted Answer

A) True 
 B)False

Question 3

Proponents of a freely floating exchange rate system maintain that it is superior to a fixed exchange rate system because

Accepted Answer

A)  the balance of payments adjusts continuously to exchange-rate movements 
B)  governments can establish independent monetary and fiscal policies 
C)  disorderly exchange rate movements can disrupt trade and investment patterns 
D)  floating exchange rates operate under simplified institutional arrangements 
A)  the balance of payments adjusts continuously to exchange-rate movements 
B)  governments can establish independent monetary and fiscal policies 
C)  disorderly exchange rate movements can disrupt trade and investment patterns 
D)  floating exchange rates operate under simplified institutional arrangements

Question 4

For Ecuador,the result of adopting the dollar as its official currency is that

Accepted Answer

A)  its government cannot capture revenue (seigniorage) by issuing currency 
B)  there tends to be greater promise of lower interest rates and greater financial stability 
C)  the rate of inflation in Ecuador is tied to that of the United States 
D)  all of the above 
A)  its government cannot capture revenue (seigniorage) by issuing currency 
B)  there tends to be greater promise of lower interest rates and greater financial stability 
C)  the rate of inflation in Ecuador is tied to that of the United States 
D)  all of the above

Question 5

The Bretton Woods System of 1944-1973 was a flexible exchange rate system in which member countries allowed their currencies to float within wide bands.

Accepted Answer

A) True 
 B)False

Question 6

To offset an appreciation of the dollar against the yen,the Federal Reserve would:

Accepted Answer

A)  Sell dollars on the foreign exchange market and lower domestic interest rates 
B)  Sell dollars on the foreign exchange market and raise domestic interest rates 
C)  Buy dollars on the foreign exchange market and lower domestic interest rates 
D)  Buy dollars on the foreign exchange market and raise domestic interest rates 
A)  Sell dollars on the foreign exchange market and lower domestic interest rates 
B)  Sell dollars on the foreign exchange market and raise domestic interest rates 
C)  Buy dollars on the foreign exchange market and lower domestic interest rates 
D)  Buy dollars on the foreign exchange market and raise domestic interest rates

Question 7

Which exchange-rate mechanism is intended to insulate the balance of payments from short-term capital movements while providing exchange rate stability for commercial transactions?

Accepted Answer

A)  Dual exchange rates 
B)  Managed floating exchange rates 
C)  Adjustable pegged exchange rates 
D)  Crawling pegged exchange rates 
A)  Dual exchange rates 
B)  Managed floating exchange rates 
C)  Adjustable pegged exchange rates 
D)  Crawling pegged exchange rates

Question 8

A central bank that desires a (an) ______ of its currency would likely implement a ______ monetary policy.

Accepted Answer

A)  depreciation; expansionary 
B)  depreciation; neutral 
C)  appreciation; neutral 
D)  appreciation; expansionary 
A)  depreciation; expansionary 
B)  depreciation; neutral 
C)  appreciation; neutral 
D)  appreciation; expansionary

Question 9

A market-determined decrease in the dollar price of the pound is associated with:

Accepted Answer

A)  Revaluation of the dollar 
B)  Devaluation of the dollar 
C)  Appreciation of the dollar 
D)  Depreciation of the dollar 
A)  Revaluation of the dollar 
B)  Devaluation of the dollar 
C)  Appreciation of the dollar 
D)  Depreciation of the dollar

Question 10

The flexibility of floating rates may generate the problem of

Accepted Answer

A)  Inflationary bias 
B)  Deflationary bias 
C)  Continuous depreciation 
D)  Both a and c 
A)  Inflationary bias 
B)  Deflationary bias 
C)  Continuous depreciation 
D)  Both a and c

Question 11

For developing countries,currency boards and dollarization are intended to

Accepted Answer

A)  convince speculators that the exchange rate is unchangeable 
B)  promote confidence in the soundness of the nation's money supply 
C)  arrest any tendencies in an economy toward inflation 
D)  all of the above 
A)  convince speculators that the exchange rate is unchangeable 
B)  promote confidence in the soundness of the nation's money supply 
C)  arrest any tendencies in an economy toward inflation 
D)  all of the above

Question 12

For developing countries,efforts to prevent speculation and currency crises have included

Accepted Answer

A)  controls on capital flows 
B)  currency boards 
C)  dollarization 
D)  all of the above 
A)  controls on capital flows 
B)  currency boards 
C)  dollarization 
D)  all of the above

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

Figure 15.2
Market for the British Pound
  
-Refer to Figure 15.2.Suppose that the United States increases its imports from England.Under a floating exchange rate system,the new equilibrium exchange rate would be:

Accepted Answer

A)  $0.40 per pound 
B)  $0.60 per pound 
C)  $0.80 per pound 
D)  $1.00 per pound 
A)  $0.40 per pound 
B)  $0.60 per pound 
C)  $0.80 per pound 
D)  $1.00 per pound

Question 15

Under adjustable pegged exchange rates,if the rate of inflation in the United States exceeds the rate of inflation of its trading partners:

Accepted Answer

A)  U.S.exports tend to rise and imports tend to fall 
B)  U.S.imports tend to rise and exports tend to fall 
C)  U.S.foreign exchange reserves tend to rise 
D)  U.S.foreign exchange reserves remain constant 
A)  U.S.exports tend to rise and imports tend to fall 
B)  U.S.imports tend to rise and exports tend to fall 
C)  U.S.foreign exchange reserves tend to rise 
D)  U.S.foreign exchange reserves remain constant

Question 16

Given a two-country world,suppose Japan revalues the yen by 15 percent and South Korea revalues the won by 12 percent.This results in:

Accepted Answer

A)  An appreciation in the value of both currencies 
B)  A depreciation in the value of both currencies 
C)  An appreciation in the value of the yen against the won 
D)  A depreciation in the value of the yen against the won 
A)  An appreciation in the value of both currencies 
B)  A depreciation in the value of both currencies 
C)  An appreciation in the value of the yen against the won 
D)  A depreciation in the value of the yen against the won

Question 17

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 18

If Mexico fully dollarizes its economy,it agrees to

Accepted Answer

A)  Print pesos only to finance deficits of its national government 
B)  Use the U.S.dollar alongside its peso to finance transactions 
C)  Have the U.S.Treasury be in charge of its tax collections 
D)  Replace pesos with U.S.dollars in its economy 
A)  Print pesos only to finance deficits of its national government 
B)  Use the U.S.dollar alongside its peso to finance transactions 
C)  Have the U.S.Treasury be in charge of its tax collections 
D)  Replace pesos with U.S.dollars in its economy

Question 19

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 
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

Question 20

A ______ is a type of a fixed exchange rate system in which the commitment to the fixed exchange rate is very firm

Accepted Answer

A)  currency board 
B)  monetary policy board 
C)  fiscal policy board 
D)  customs board 
A)  currency board 
B)  monetary policy board 
C)  fiscal policy board 
D)  customs board

The "impossible trinity" should the relationship between

Most nations currently allow their currencies' exchange values to be determined solely by the forces of supply and demand in a free market.

Proponents of a freely floating exchange rate system maintain that it is superior to a fixed exchange rate system because

For Ecuador,the result of adopting the dollar as its official currency is that

The Bretton Woods System of 1944-1973 was a flexible exchange rate system in which member countries allowed their currencies to float within wide bands.

To offset an appreciation of the dollar against the yen,the Federal Reserve would:

Which exchange-rate mechanism is intended to insulate the balance of payments from short-term capital movements while providing exchange rate stability for commercial transactions?

A central bank that desires a (an) of its currency would likely implement a monetary policy.

A market-determined decrease in the dollar price of the pound is associated with:

The flexibility of floating rates may generate the problem of

For developing countries,currency boards and dollarization are intended to

For developing countries,efforts to prevent speculation and currency crises have included

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.

Figure 15.2 Market for the British Pound -Refer to Figure 15.2.Suppose that the United States increases its imports from England.Under a floating exchange rate system,the new equilibrium exchange rate would be:

Under adjustable pegged exchange rates,if the rate of inflation in the United States exceeds the rate of inflation of its trading partners:

Given a two-country world,suppose Japan revalues the yen by 15 percent and South Korea revalues the won by 12 percent.This results in:

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.

If Mexico fully dollarizes its economy,it agrees to

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

A ______ is a type of a fixed exchange rate system in which the commitment to the fixed exchange rate is very firm

The International Economy and Globalization

Foundations of Modern Trade Theory: Comparative Advantage

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

Regional Trading Arrangements

International Factor Movements and Multinational Enterprises

The Balance-of-payments

Foreign Exchange

Exchange Rate Determination

Mechanisms of International Adjustment

Exchange Rate Adjustments and the Balance-of-payments

Macroeconomic Policy in an Open-economy

International Banking: Reserves, Debt, and Risk

Filters

Exam 15: Exchange Rate Systems and Currency Crises

The "impossible trinity" should the relationship between

Most nations currently allow their currencies' exchange values to be determined solely by the forces of supply and demand in a free market.

Proponents of a freely floating exchange rate system maintain that it is superior to a fixed exchange rate system because

For Ecuador,the result of adopting the dollar as its official currency is that

The Bretton Woods System of 1944-1973 was a flexible exchange rate system in which member countries allowed their currencies to float within wide bands.

To offset an appreciation of the dollar against the yen,the Federal Reserve would:

Which exchange-rate mechanism is intended to insulate the balance of payments from short-term capital movements while providing exchange rate stability for commercial transactions?

A central bank that desires a (an) ______ of its currency would likely implement a ______ monetary policy.

A market-determined decrease in the dollar price of the pound is associated with:

The flexibility of floating rates may generate the problem of

For developing countries,currency boards and dollarization are intended to

For developing countries,efforts to prevent speculation and currency crises have included

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.

Figure 15.2 Market for the British Pound -Refer to Figure 15.2.Suppose that the United States increases its imports from England.Under a floating exchange rate system,the new equilibrium exchange rate would be:

Under adjustable pegged exchange rates,if the rate of inflation in the United States exceeds the rate of inflation of its trading partners:

Given a two-country world,suppose Japan revalues the yen by 15 percent and South Korea revalues the won by 12 percent.This results in:

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.

If Mexico fully dollarizes its economy,it agrees to

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

A ______ is a type of a fixed exchange rate system in which the commitment to the fixed exchange rate is very firm

The International Economy and Globalization

Foundations of Modern Trade Theory: Comparative Advantage

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

Regional Trading Arrangements

International Factor Movements and Multinational Enterprises

The Balance-of-payments

Foreign Exchange

Exchange Rate Determination

Mechanisms of International Adjustment

Exchange Rate Adjustments and the Balance-of-payments

Macroeconomic Policy in an Open-economy

International Banking: Reserves, Debt, and Risk

Filters

A central bank that desires a (an) of its currency would likely implement a monetary policy.