Question 1

Briefly explain what it means to be a "reserve-currency" country.What are the advantages? Can you think of any disadvantages?

Accepted Answer

The answer of Briefly explain what it means to be...

Question 2

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. 
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. B

Question 3

What kind of exchange rate system did the Bretton Woods agreement establish?

Accepted Answer

A)  Floating 
B)  Managed float 
C)  Dirty float 
D)  Fixed 
A)  Floating 
B)  Managed float 
C)  Dirty float 
D)  Fixed D

Question 4

Under a fixed exchange rate regime,when the domestic currency is overvalued,the central bank must ________ the domestic currency to keep the exchange rate fixed; as a result,it ________ international reserves.

Accepted Answer

A)  purchase; loses 
B)  sell; loses 
C)  purchase; gains 
D)  sell; gains 
A)  purchase; loses 
B)  sell; loses 
C)  purchase; gains 
D)  sell; gains

Question 5

In the Bretton Woods system,the anchor currency was the

Accepted Answer

A)  euro. 
B)  British pound. 
C)  German mark. 
D)  U.S. dollar. 
A)  euro. 
B)  British pound. 
C)  German mark. 
D)  U.S. dollar.

Question 6

A balance of payments ________ is associated with a ________ of international reserves.

Accepted Answer

A)  deficit; loss 
B)  deficit; gain 
C)  surplus; loss 
D)  balance; gain 
A)  deficit; loss 
B)  deficit; gain 
C)  surplus; loss 
D)  balance; gain

Question 7

By the end of 2012,China had accumulated more than $3 trillion of 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; decline 
B)  sale; sale; increase 
C)  purchase; sale; increase 
D)  purchase; sale; decline 
A)  sale; purchase; decline 
B)  sale; sale; increase 
C)  purchase; sale; increase 
D)  purchase; sale; decline

Question 9

Explain graphically the speculative attacks that occurred against the British pound in 1992,the Mexican peso in 1994,the Thai baht in 1997,the Brazilian real in 1999,and the Argentine peso in 2002.

Accepted Answer

The answer of Explain graphically the speculative attacks that occurred...

Question 10

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. 
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 11

When it acts as a lender of last resort,the IMF may increase the likelihood that financial institutions take excessive risks and thus increase moral hazard.

Accepted Answer

A) True 
 B)False

Question 12

The euro is unlikely to seriously challenge the dollar as a reserve currency as long as

Accepted Answer

A)  the European Union's share of world GDP remains significantly smaller than that of the United States. 
B)  the European Union's share of world exports remains significantly smaller than that of the United States. 
C)  Europe neglects to integrate its financial markets. 
D)  the European Union is unable to function as a cohesive political entity. 
A)  the European Union's share of world GDP remains significantly smaller than that of the United States. 
B)  the European Union's share of world exports remains significantly smaller than that of the United States. 
C)  Europe neglects to integrate its financial markets. 
D)  the European Union is unable to function as a cohesive political entity.

Question 13

Describe the pros and cons for controls on capital inflows and outflows.

Accepted Answer

The answer of Describe the pros and cons for controls...

Question 14

A managed float regime is when countries intervene in foreign exchange markets in an attempt to influence their exchange rates by buying and selling foreign assets.

Accepted Answer

A) True 
 B)False

Question 15

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

Question 16

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 17

Under the Bretton Woods system,when a nonreserve-currency country was running a balance of payments deficit,

Accepted Answer

A)  it gained international reserves. 
B)  it lost international reserves. 
C)  it was necessary for the policymakers to implement a contractionary monetary policy. 
D)  both A and C of the above occurred. 
E)  both B and C of the above occurred. 
A)  it gained international reserves. 
B)  it lost international reserves. 
C)  it was necessary for the policymakers to implement a contractionary monetary policy. 
D)  both A and C of the above occurred. 
E)  both B and C of the above occurred.

Question 18

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

Question 19

Policymakers may not want to see their country's currency appreciate because

Accepted Answer

A)  this would hurt consumers in their country by making foreign goods more expensive. 
B)  this would hurt domestic businesses by making foreign goods cheaper in their country. 
C)  this would increase inflation in their country. 
D)  this would decrease the wealth of the country. 
A)  this would hurt consumers in their country by making foreign goods more expensive. 
B)  this would hurt domestic businesses by making foreign goods cheaper in their country. 
C)  this would increase inflation in their country. 
D)  this would decrease the wealth of the country.

Question 20

Which of the following statements is correct?

Accepted Answer

A)  Current account balance = capital account balance 
B)  Current account balance = capital account balance + net change in government international reserves 
C)  Current account balance + capital account balance = net change in government international reserves 
D)  Current account balance + net change in government international reserves = capital account balance 
A)  Current account balance = capital account balance 
B)  Current account balance = capital account balance + net change in government international reserves 
C)  Current account balance + capital account balance = net change in government international reserves 
D)  Current account balance + net change in government international reserves = capital account balance

Exam 16: The International Financial System

Briefly explain what it means to be a "reserve-currency" country.What are the advantages? Can you think of any disadvantages?

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

What kind of exchange rate system did the Bretton Woods agreement establish?

Under a fixed exchange rate regime,when the domestic currency is overvalued,the central bank must ________ the domestic currency to keep the exchange rate fixed; as a result,it ________ international reserves.

In the Bretton Woods system,the anchor currency was the

A balance of payments ________ is associated with a ________ of international reserves.

By the end of 2012,China had accumulated more than $3 trillion of 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.

Explain graphically the speculative attacks that occurred against the British pound in 1992,the Mexican peso in 1994,the Thai baht in 1997,the Brazilian real in 1999,and the Argentine peso in 2002.

The official reserve transactions balance

When it acts as a lender of last resort,the IMF may increase the likelihood that financial institutions take excessive risks and thus increase moral hazard.

The euro is unlikely to seriously challenge the dollar as a reserve currency as long as

Describe the pros and cons for controls on capital inflows and outflows.

A managed float regime is when countries intervene in foreign exchange markets in an attempt to influence their exchange rates by buying and selling foreign assets.

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.

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

Under the Bretton Woods system,when a nonreserve-currency country was running a balance of payments deficit,

(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.

Policymakers may not want to see their country's currency appreciate because

Which of the following statements is correct?

Why Study Financial Markets and Institutions?

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation?

Why Do Interest Rates Change?

How Do Risk and Term Structure Affect Interest Rates?

Are Financial Markets Efficient?

Why Do Financial Institutions Exist?

Why Do Financial Crises Occur and

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging with Financial Derivatives

Financial Crises In Emerging Market Economies

Savings Associations and Credit Unions

Finance Companies

Filters

Under a fixed exchange rate regime,when the domestic currency is overvalued,the central bank must the domestic currency to keep the exchange rate fixed; as a result,it international reserves.

A balance of payments is associated with a of 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.

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.