Question 1

The main difficulty with a fixed or pegged exchange rate regime is that the:

Accepted Answer

A) government finds it difficult to conduct fiscal policy as it cannot always be certain of the central bank's intervention in foreign exchange markets. 
B) central bank must always sterilise foreign exchange market interventions. 
C) central bank loses the power to conduct independent domestic monetary policy. 
D) central bank will run out of official reserves of foreign exchange. 
A) government finds it difficult to conduct fiscal policy as it cannot always be certain of the central bank's intervention in foreign exchange markets. 
B) central bank must always sterilise foreign exchange market interventions. 
C) central bank loses the power to conduct independent domestic monetary policy. 
D) central bank will run out of official reserves of foreign exchange. C

Question 2

'Capital controls' are limits on the flow of foreign exchange and financial investment across countries.

Accepted Answer

A) True 
 B)False  True

Question 3

Because of inflation, the prices of Australian goods are rising faster than prices of goods in Great Britain. If purchasing power parity holds, then:

Accepted Answer

A) the Australian dollar will depreciate against the British pound. 
B) the Australian dollar will appreciate against the British pound. 
C) the value of the Australian dollar relative to the British pound will remain the same. 
D) it will take fewer Australian dollars to buy one British pound. 
A) the Australian dollar will depreciate against the British pound. 
B) the Australian dollar will appreciate against the British pound. 
C) the value of the Australian dollar relative to the British pound will remain the same. 
D) it will take fewer Australian dollars to buy one British pound. A

Question 4

Under the 'Bretton Woods System':

Accepted Answer

A) the United States of America pledged to buy gold at $35 an ounce. 
B) the central banks of the members of the system agreed to allow their currencies to float. 
C) the members of the system agreed to redeem their paper currency domestically. 
D) exchange rates were floating, determined in the market. 
A) the United States of America pledged to buy gold at $35 an ounce. 
B) the central banks of the members of the system agreed to allow their currencies to float. 
C) the members of the system agreed to redeem their paper currency domestically. 
D) exchange rates were floating, determined in the market.

Question 5

Explain why a country might want their currency to appreciate against the currency of a major trading partner in order to fight inflation.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The appreciation of domestic currency re

Question 6

If there is ________ in prices overseas relative to Australia, the demand for ________ in the foreign exchange market.

Accepted Answer

A) a decrease; Australian dollars will decrease 
B) an increase; Australian dollars will decrease 
C) an increase; foreign currencies will increase 
D) None of these options is correct. 
A) a decrease; Australian dollars will decrease 
B) an increase; Australian dollars will decrease 
C) an increase; foreign currencies will increase 
D) None of these options is correct.

Question 7

The trade weighted index (TWI)is a measure of the:

Accepted Answer

A) difference between exports and imports, to establish the balance of trade on goods and services. 
B) value of the Australian dollar against a basket of currencies of its major trading partners. 
C) volume of international trade throughout the world. 
D) price changes in goods and services traded between Australia and the rest of the world. 
A) difference between exports and imports, to establish the balance of trade on goods and services. 
B) value of the Australian dollar against a basket of currencies of its major trading partners. 
C) volume of international trade throughout the world. 
D) price changes in goods and services traded between Australia and the rest of the world.

Question 8

What factors occur in the real world that prevent 'purchasing power parity' from occurring fully in the long run?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

Not all products are traded internationa

Question 9

The 'Bretton Woods System' was a:

Accepted Answer

A) system of fixed exchange rates based on the gold standard. 
B) system of fixed exchange rates where central banks fixed the value of their currencies against the US$. 
C) system of floating exchange rates where central banks floated the value of their currencies. 
D) system of managed-float exchange rates where demand and supply mainly determined the value of currencies with occasional government intervention. 
A) system of fixed exchange rates based on the gold standard. 
B) system of fixed exchange rates where central banks fixed the value of their currencies against the US$. 
C) system of floating exchange rates where central banks floated the value of their currencies. 
D) system of managed-float exchange rates where demand and supply mainly determined the value of currencies with occasional government intervention.

Question 10

The Australian dollar was floated in:

Accepted Answer

A) 1974. 
B) 1983. 
C) 1989. 
D) 2001. 
A) 1974. 
B) 1983. 
C) 1989. 
D) 2001.

Question 11

A country that allows its exchange rate to be determined by the market, without government intervention, has a:

Accepted Answer

A) floating currency. 
B) fixed currency. 
C) managed float exchange rate system. 
D) gold standard. 
A) floating currency. 
B) fixed currency. 
C) managed float exchange rate system. 
D) gold standard.

Question 12

The United States of America implements a quota on imported cotton. This will ________ the supply of United States dollars relative to the currencies of foreign cotton producers and lead to a(n)________ of United States dollars relative to these foreign currencies.

Accepted Answer

A) increase; appreciation 
B) increase; depreciation 
C) decrease; appreciation 
D) decrease; depreciation 
A) increase; appreciation 
B) increase; depreciation 
C) decrease; appreciation 
D) decrease; depreciation

Question 13

International flows of capital can increase both efficiency and economic growth in countries around the world.

Accepted Answer

A) True 
 B)False

Question 14

Suppose that the current equilibrium exchange rate between the United States (US)dollar and Philippine peso is $0.20 per peso. The Philippine government pegged the peso to the US dollar at the rate of $0.25 per peso. Draw the market demand and supply curve of pesos for US dollars. Would the Philippine central bank have to buy or sell pesos to maintain the peg? Show on the diagram how many pesos would be bought and sold.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The equilibrium exchange rate is shown b

Question 15

Explain the difference between a 'floating exchange rate', a 'managed float' and a 'fixed exchange rate'.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

In a floating exchange rate system, ther

Question 16

All of the following are considered among the four most important determinants in explaining exchange rate fluctuations in the long run, except:

Accepted Answer

A) tariffs and quotas. 
B) preferences for domestic and foreign goods. 
C) interest rates. 
D) relative rates of productivity growth across countries. 
A) tariffs and quotas. 
B) preferences for domestic and foreign goods. 
C) interest rates. 
D) relative rates of productivity growth across countries.

Question 17

The Chinese were reluctant to allow the value of the yuan to rise against the United States (US)dollar because it would:

Accepted Answer

A) decrease exports to the USA. 
B) increase the value of the large holdings of US dollars that China had accumulated. 
C) raise the price of imported goods from the USA. 
D) make Chinese exported goods less expensive in the USA. 
A) decrease exports to the USA. 
B) increase the value of the large holdings of US dollars that China had accumulated. 
C) raise the price of imported goods from the USA. 
D) make Chinese exported goods less expensive in the USA.

Question 18

According to the theory of 'purchasing power parity', the foreign exchange market will:

Accepted Answer

A) no longer demand Australian dollars if the inflation rate in Australia is higher than the inflation rates in other countries. 
B) undervalue the Australian dollar if inflation in Australia is higher than the inflation rates in other countries. 
C) adjust the value of currencies to reflect differing inflation rates between countries. 
D) result in an increase in the supply of dollars whenever Australia's inflation rate is lower than the inflation rates in other countries. 
A) no longer demand Australian dollars if the inflation rate in Australia is higher than the inflation rates in other countries. 
B) undervalue the Australian dollar if inflation in Australia is higher than the inflation rates in other countries. 
C) adjust the value of currencies to reflect differing inflation rates between countries. 
D) result in an increase in the supply of dollars whenever Australia's inflation rate is lower than the inflation rates in other countries.

Question 19

Why do countries peg their currencies? What problems can result from pegging?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

Countries peg their currencies to make p

Question 20

What is a 'gold standard'? What kind of exchange rate system is it? What problem does it present during a depression?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

A gold standard is a monetary system whe

The main difficulty with a fixed or pegged exchange rate regime is that the:

'Capital controls' are limits on the flow of foreign exchange and financial investment across countries.

Because of inflation, the prices of Australian goods are rising faster than prices of goods in Great Britain. If purchasing power parity holds, then:

Under the 'Bretton Woods System':

Explain why a country might want their currency to appreciate against the currency of a major trading partner in order to fight inflation. _ _

If there is in prices overseas relative to Australia, the demand for in the foreign exchange market.

The trade weighted index (TWI)is a measure of the:

What factors occur in the real world that prevent 'purchasing power parity' from occurring fully in the long run? _ _

The 'Bretton Woods System' was a:

The Australian dollar was floated in:

A country that allows its exchange rate to be determined by the market, without government intervention, has a:

The United States of America implements a quota on imported cotton. This will the supply of United States dollars relative to the currencies of foreign cotton producers and lead to a(n) of United States dollars relative to these foreign currencies.

International flows of capital can increase both efficiency and economic growth in countries around the world.

Explain the difference between a 'floating exchange rate', a 'managed float' and a 'fixed exchange rate'. _ _

All of the following are considered among the four most important determinants in explaining exchange rate fluctuations in the long run, except:

The Chinese were reluctant to allow the value of the yuan to rise against the United States (US)dollar because it would:

According to the theory of 'purchasing power parity', the foreign exchange market will:

Why do countries peg their currencies? What problems can result from pegging? _ _

What is a 'gold standard'? What kind of exchange rate system is it? What problem does it present during a depression? _ _

Economics: Foundations and Models

Choices and Trade Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Gdp: Measuring Total Production, Income and Economic Growth

Economic Growth, the Financial System and Business Cycles

Long-Run Economic Growth: Sources and Policies

Unemployment

Inflation

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Macroeconomics in an Open Economy

Filters

Exam 15: The International Financial System

The main difficulty with a fixed or pegged exchange rate regime is that the:

'Capital controls' are limits on the flow of foreign exchange and financial investment across countries.

Because of inflation, the prices of Australian goods are rising faster than prices of goods in Great Britain. If purchasing power parity holds, then:

Under the 'Bretton Woods System':

If there is ________ in prices overseas relative to Australia, the demand for ________ in the foreign exchange market.

The trade weighted index (TWI)is a measure of the:

The 'Bretton Woods System' was a:

The Australian dollar was floated in:

A country that allows its exchange rate to be determined by the market, without government intervention, has a:

The United States of America implements a quota on imported cotton. This will ________ the supply of United States dollars relative to the currencies of foreign cotton producers and lead to a(n)________ of United States dollars relative to these foreign currencies.

International flows of capital can increase both efficiency and economic growth in countries around the world.

Explain the difference between a 'floating exchange rate', a 'managed float' and a 'fixed exchange rate'. _____________________________________________________________________________________________ _____________________________________________________________________________________________

All of the following are considered among the four most important determinants in explaining exchange rate fluctuations in the long run, except:

The Chinese were reluctant to allow the value of the yuan to rise against the United States (US)dollar because it would:

According to the theory of 'purchasing power parity', the foreign exchange market will:

Why do countries peg their currencies? What problems can result from pegging? _____________________________________________________________________________________________ _____________________________________________________________________________________________

Economics: Foundations and Models

Choices and Trade Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Gdp: Measuring Total Production, Income and Economic Growth

Economic Growth, the Financial System and Business Cycles

Long-Run Economic Growth: Sources and Policies

Unemployment

Inflation

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks and the Reserve Bank of Australia

Monetary Policy

Fiscal Policy

Macroeconomics in an Open Economy

Filters

If there is in prices overseas relative to Australia, the demand for in the foreign exchange market.

The United States of America implements a quota on imported cotton. This will the supply of United States dollars relative to the currencies of foreign cotton producers and lead to a(n) of United States dollars relative to these foreign currencies.

Explain the difference between a 'floating exchange rate', a 'managed float' and a 'fixed exchange rate'. _ _

Why do countries peg their currencies? What problems can result from pegging? _ _