Question 1

Imperfect asset substitutability exists

Accepted Answer

A)  when it is possible for the expected returns on two assets to be different. 
B)  when the expected returns on two assets are the same. 
C)  only when one asset is foreign and the other is domestic. 
D)  when there is risk in the foreign exchange market. 
E)  when assets are liquid. 
A)  when it is possible for the expected returns on two assets to be different. 
B)  when the expected returns on two assets are the same. 
C)  only when one asset is foreign and the other is domestic. 
D)  when there is risk in the foreign exchange market. 
E)  when assets are liquid. D

Question 2

Please discuss the difference between the terms devaluation and depreciation.

Accepted Answer

Depreciation is a rise in the exchange rate E when the exchange rate floats, while devaluation is a rise in E when the exchange rate is fixed. Devaluation reflects a deliberate government decision, while depreciation is an outcome of government actions and market forces ("the invisible hand") acting together.

Question 3

Which one of the following statements is the MOST accurate?

Accepted Answer

A)  Fiscal policy has the same effect on employment under fixed and flexible exchange rate regimes. 
B)  Fiscal policy affects employment less under fixed than under flexible exchange rate regimes. 
C)  Fiscal policy affects employment more under fixed than under flexible exchange rate regimes. 
D)  Fiscal policy cannot affect employment under fixed exchange rate but does affect output under flexible exchange rate regimes. 
E)  Fiscal policy can affect employment under fixed exchange rate regimes, but does not affect output under flexible exchange rate regimes. 
A)  Fiscal policy has the same effect on employment under fixed and flexible exchange rate regimes. 
B)  Fiscal policy affects employment less under fixed than under flexible exchange rate regimes. 
C)  Fiscal policy affects employment more under fixed than under flexible exchange rate regimes. 
D)  Fiscal policy cannot affect employment under fixed exchange rate but does affect output under flexible exchange rate regimes. 
E)  Fiscal policy can affect employment under fixed exchange rate regimes, but does not affect output under flexible exchange rate regimes. C

Question 4

Which one of the following statements is the MOST accurate?

Accepted Answer

A)  Depreciation is a rise in E when the exchange rate is fixed while devaluation is a rise in E when the exchange rate floats. 
B)  Depreciation is a decrease in E when the exchange rate floats while devaluation is a rise in E when the exchange rate is fixed. 
C)  Depreciation is a rise in E when the exchange rate floats while devaluation is a rise in E when the exchange rate is fixed. 
D)  Depreciation is a rise in E when the exchange rate floats while devaluation is a decrease in E when the exchange rate is fixed. 
E)  Depreciation is a fall in E when the exchange rate is fixed while devaluation is a fall in E when the exchange rate floats. 
A)  Depreciation is a rise in E when the exchange rate is fixed while devaluation is a rise in E when the exchange rate floats. 
B)  Depreciation is a decrease in E when the exchange rate floats while devaluation is a rise in E when the exchange rate is fixed. 
C)  Depreciation is a rise in E when the exchange rate floats while devaluation is a rise in E when the exchange rate is fixed. 
D)  Depreciation is a rise in E when the exchange rate floats while devaluation is a decrease in E when the exchange rate is fixed. 
E)  Depreciation is a fall in E when the exchange rate is fixed while devaluation is a fall in E when the exchange rate floats.

Question 5

From 1837 and up until the Civil War, the United States adhered to a

Accepted Answer

A)  gold standard. 
B)  silver standard. 
C)  bimetallic standard. 
D)  bronze standard. 
E)  copper standard. 
A)  gold standard. 
B)  silver standard. 
C)  bimetallic standard. 
D)  bronze standard. 
E)  copper standard.

Question 6

Does the signalling effect of foreign exchange intervention support or refute the claim that assets cannot be perfect substitutes if sterilized intervention is going to have any effect?
 Please explain.

Accepted Answer

The signalling effect refutes the claim.

Question 7

A balance sheet for the central bank of Pecunia is shown below:
Central Bank Balance Sheet
AssetsLiabilities
Foreign assets $1,000Deposits held by private banks $500
Domestic assets $1,500Currency in circulation$2,000
Please write the new balance sheet if the bank makes a sterilized transaction by selling $100 of foreign assets for domestic currency and then purchasing $100 of domestic assets by writing a check on itself.

Accepted Answer

Central Bank Balance Sheet
Ass

Question 8

The signaling effect of foreign exchange intervention

Accepted Answer

A)  never has any effect on exchange rates. 
B)  can alter the market's view of exchange rates independent from the stance of monetary and fiscal policies. 
C)  cannot cause an immediate exchange rate change when bonds denominated in different currencies are perfect substitutes. 
D)  never leads to actual changes in monetary or fiscal policy. 
E)  can alter the market's view of future monetary policies and cause an immediate exchange rate change. 
A)  never has any effect on exchange rates. 
B)  can alter the market's view of exchange rates independent from the stance of monetary and fiscal policies. 
C)  cannot cause an immediate exchange rate change when bonds denominated in different currencies are perfect substitutes. 
D)  never leads to actual changes in monetary or fiscal policy. 
E)  can alter the market's view of future monetary policies and cause an immediate exchange rate change.

Question 9

Imperfect asset substitutability assumes

Accepted Answer

A)  the returns on foreign and domestic currency bonds are identical. 
B)  the returns on foreign and domestic currency are unrelated. 
C)  the risks of holding foreign and domestic currency are identical. 
D)  the risks of holding foreign and domestic currency are unrelated to returns. 
E)  the returns on foreign and domestic currency differ and are influenced by risk. 
A)  the returns on foreign and domestic currency bonds are identical. 
B)  the returns on foreign and domestic currency are unrelated. 
C)  the risks of holding foreign and domestic currency are identical. 
D)  the risks of holding foreign and domestic currency are unrelated to returns. 
E)  the returns on foreign and domestic currency differ and are influenced by risk.

Question 10

Which one of the following statements is most correct?

Accepted Answer

A)  Any central bank purchase of assets automatically results in an increase in the domestic money supply, while any central bank sale of assets automatically causes the money supply to decline. 
B)  Any central bank purchase of assets results in an increase in the domestic money supply, while any central bank sale of assets causes the money supply to decline. 
C)  Any central bank purchase of assets automatically results in a decrease in the domestic money supply, while any central bank sale of assets automatically causes the money supply to decline. 
D)  Any central bank purchase of assets automatically results in a decrease in the domestic money supply, while any central bank sale of assets automatically causes the money supply to increase. 
E)  Any central bank purchase of assets automatically results in an increase in the domestic money supply, while any central bank sale of assets does not necessarily affect the money supply. 
A)  Any central bank purchase of assets automatically results in an increase in the domestic money supply, while any central bank sale of assets automatically causes the money supply to decline. 
B)  Any central bank purchase of assets results in an increase in the domestic money supply, while any central bank sale of assets causes the money supply to decline. 
C)  Any central bank purchase of assets automatically results in a decrease in the domestic money supply, while any central bank sale of assets automatically causes the money supply to decline. 
D)  Any central bank purchase of assets automatically results in a decrease in the domestic money supply, while any central bank sale of assets automatically causes the money supply to increase. 
E)  Any central bank purchase of assets automatically results in an increase in the domestic money supply, while any central bank sale of assets does not necessarily affect the money supply.

Question 11

List the drawbacks of the gold standard.

Accepted Answer

1. Undesirable constraints on the use of

Question 12

This question concerns the mechanism of a reserve currency standard.
Two countries, X and Y, have two currencies, x and y, fixed to the reserve currency, the U.S. dollar. Suppose the exchange rate between x and the U.S. dollar is 3x per dollar. Suppose the exchange rate between y and the U.S. dollar is 5y per dollar. Explain (using numbers) the mechanism if the x-y exchange rate was 0.5 x per y.

Accepted Answer

At this exchange rate, an investor can m

Question 13

Under fixed rates, which one of the following statements is the MOST accurate?

Accepted Answer

A)  Fiscal policy can affect output, employment and international reserves at the same time. 
B)  Fiscal policy can affect only employment. 
C)  Fiscal policy can affect only international reserves. 
D)  Fiscal policy can affect only output and employment. 
E)  Fiscal employment can affect only output and international reserves. 
A)  Fiscal policy can affect output, employment and international reserves at the same time. 
B)  Fiscal policy can affect only employment. 
C)  Fiscal policy can affect only international reserves. 
D)  Fiscal policy can affect only output and employment. 
E)  Fiscal employment can affect only output and international reserves.

Question 14

From the Civil War up to 1914, the United States adhered to a

Accepted Answer

A)  gold standard. 
B)  silver standard. 
C)  bimetallic standard. 
D)  bronze standard. 
E)  copper standard. 
A)  gold standard. 
B)  silver standard. 
C)  bimetallic standard. 
D)  bronze standard. 
E)  copper standard.

Question 15

Industrialized countries typically ________ their floating exchange rates. Developing countries often ________ their floating exchange rates.

Accepted Answer

A)  fix; allow markets to determine 
B)  manage; peg 
C)  allow markets to determine; fix 
D)  fix; manage 
E)  peg; manage 
A)  fix; allow markets to determine 
B)  manage; peg 
C)  allow markets to determine; fix 
D)  fix; manage 
E)  peg; manage

Question 16

If the central bank does not purchase foreign assets when output increases but instead holds the money stock constant, can it still keep the exchange rate fixed at   ?
 Please explain with the aid of a figure.

Accepted Answer

@#IMG-DLM& 
No, the rise in output leads to an exc

Question 17

A balance of payments crisis is best described as

Accepted Answer

A)  a sharp change in interest rates sparked by a change in expectations about the level of imports. 
B)  a sharp change in foreign reserves sparked by a change in expectations about the future exchange rate. 
C)  a sharp change in interest rates sparked by a change in expectations about the level of exports. 
D)  a sharp change in foreign reserves sparked by a change in expectations about the level of imports. 
E)  a sharp change in foreign reserves sparked by a change in expectations about domestic production. 
A)  a sharp change in interest rates sparked by a change in expectations about the level of imports. 
B)  a sharp change in foreign reserves sparked by a change in expectations about the future exchange rate. 
C)  a sharp change in interest rates sparked by a change in expectations about the level of exports. 
D)  a sharp change in foreign reserves sparked by a change in expectations about the level of imports. 
E)  a sharp change in foreign reserves sparked by a change in expectations about domestic production.

Question 18

A balance of payments crises under fixed exchange rates occurs when

Accepted Answer

A)  marginal returns on foreign exchange investments approach zero. 
B)  a country runs out of foreign reserves. 
C)  a country is in a liquidity trap. 
D)  forward currency markets undergo high volatility. 
E)  exports and imports expand beyond some point. 
A)  marginal returns on foreign exchange investments approach zero. 
B)  a country runs out of foreign reserves. 
C)  a country is in a liquidity trap. 
D)  forward currency markets undergo high volatility. 
E)  exports and imports expand beyond some point.

Question 19

Under fixed exchange rate, in general

Accepted Answer

A)  the domestic and foreign interest rates are equal, R = R*. 
B)  R = R + (Eᵉ - 
E) /E. 
C)  the foreign and domestic interest rates are unequal. 
D)  the expected rate of domestic currency depreciation is high. 
E)  the expected rate of currency depreciation is one. 
A)  the domestic and foreign interest rates are equal, R = R*. 
B)  R = R + (Eᵉ - 
E) /E. 
C)  the foreign and domestic interest rates are unequal. 
D)  the expected rate of domestic currency depreciation is high. 
E)  the expected rate of currency depreciation is one.

Question 20

When a country's currency is devalued

Accepted Answer

A)  output decreases. 
B)  output increases and the money supply decreases. 
C)  the money supply decreases. 
D)  output decreases and the money supply increases. 
E)  both the output and the money supply increases. 
A)  output decreases. 
B)  output increases and the money supply decreases. 
C)  the money supply decreases. 
D)  output decreases and the money supply increases. 
E)  both the output and the money supply increases.

Imperfect asset substitutability exists

Please discuss the difference between the terms devaluation and depreciation.

Which one of the following statements is the MOST accurate?

Which one of the following statements is the MOST accurate?

From 1837 and up until the Civil War, the United States adhered to a

Does the signalling effect of foreign exchange intervention support or refute the claim that assets cannot be perfect substitutes if sterilized intervention is going to have any effect? Please explain.

The signaling effect of foreign exchange intervention

Imperfect asset substitutability assumes

Which one of the following statements is most correct?

List the drawbacks of the gold standard.

Under fixed rates, which one of the following statements is the MOST accurate?

From the Civil War up to 1914, the United States adhered to a

Industrialized countries typically their floating exchange rates. Developing countries often their floating exchange rates.

If the central bank does not purchase foreign assets when output increases but instead holds the money stock constant, can it still keep the exchange rate fixed at ? Please explain with the aid of a figure.

A balance of payments crisis is best described as

A balance of payments crises under fixed exchange rates occurs when

Under fixed exchange rate, in general

When a country's currency is devalued

Introduction

World Trade: an Overview

Labor Productivity and Comparative Advantage: the Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: an Asset Approach

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

International Monetary Systems: an Historical Overview

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

Filters

Exam 18: Fixed Exchange Rates and Foreign Exchange Intervention

Imperfect asset substitutability exists

Please discuss the difference between the terms devaluation and depreciation.

Which one of the following statements is the MOST accurate?

Which one of the following statements is the MOST accurate?

From 1837 and up until the Civil War, the United States adhered to a

Does the signalling effect of foreign exchange intervention support or refute the claim that assets cannot be perfect substitutes if sterilized intervention is going to have any effect? Please explain.

The signaling effect of foreign exchange intervention

Imperfect asset substitutability assumes

Which one of the following statements is most correct?

List the drawbacks of the gold standard.

Under fixed rates, which one of the following statements is the MOST accurate?

From the Civil War up to 1914, the United States adhered to a

Industrialized countries typically ________ their floating exchange rates. Developing countries often ________ their floating exchange rates.

If the central bank does not purchase foreign assets when output increases but instead holds the money stock constant, can it still keep the exchange rate fixed at ? Please explain with the aid of a figure.

A balance of payments crisis is best described as

A balance of payments crises under fixed exchange rates occurs when

Under fixed exchange rate, in general

When a country's currency is devalued

Introduction

World Trade: an Overview

Labor Productivity and Comparative Advantage: the Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: an Asset Approach

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

International Monetary Systems: an Historical Overview

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

Filters

Industrialized countries typically their floating exchange rates. Developing countries often their floating exchange rates.