Question 1

Nations adopting currency boards have tended to experience

Accepted Answer

A)  improved GDP growth 
B)  smaller budget deficits 
C)  lower average inflation rates 
D)  smaller swings in inflation rates over time 
E)  all of the above 
A)  improved GDP growth 
B)  smaller budget deficits 
C)  lower average inflation rates 
D)  smaller swings in inflation rates over time 
E)  all of the above E

Question 2

A Sovereign Wealth Fund is generally defined as

Accepted Answer

A)  A fund that invests in Sovereign Debt 
B)  Central Bank holdings of foreign exchange 
C)  A State-Run Fund that generally invest overseas in risky and/or illiquid assets 
D)  A State-Run Fund that invests only in domestic assets 
E)  A fund that invests the wealth of a King or Queen 
A)  A fund that invests in Sovereign Debt 
B)  Central Bank holdings of foreign exchange 
C)  A State-Run Fund that generally invest overseas in risky and/or illiquid assets 
D)  A State-Run Fund that invests only in domestic assets 
E)  A fund that invests the wealth of a King or Queen C

Question 3

Which of the following conditions would make fixed exchange rates relatively unattractive for a nation?

Accepted Answer

A)  high levels of foreign exchange reserves 
B)  relatively little involvement in global capital markets 
C)  immobility of labor and sticky wages 
D)  weak central bank credibility 
E)  heavy reliance on trade with the country whose currency will be the peg 
A)  high levels of foreign exchange reserves 
B)  relatively little involvement in global capital markets 
C)  immobility of labor and sticky wages 
D)  weak central bank credibility 
E)  heavy reliance on trade with the country whose currency will be the peg C

Question 4

First generation models of currency crises can most reliably explain

Accepted Answer

A)  the dollar crisis of the 1960s 
B)  Latin American currency crises in the 1970s and 1980s 
C)  the 1992 crisis in the European Exchange Rate Mechanism (ERM) 
D)  the Asian crisis of the 1990s 
E)  none of the above 
A)  the dollar crisis of the 1960s 
B)  Latin American currency crises in the 1970s and 1980s 
C)  the 1992 crisis in the European Exchange Rate Mechanism (ERM) 
D)  the Asian crisis of the 1990s 
E)  none of the above

Question 5

Under which of the following exchange rate systems does a country,in effect,close down its central bank?

Accepted Answer

A)  pure float 
B)  basket peg 
C)  truly fixed exchange rates 
D)  currency board 
E)  dollarization 
A)  pure float 
B)  basket peg 
C)  truly fixed exchange rates 
D)  currency board 
E)  dollarization

Question 6

The central feature of second-generation currency crisis models is

Accepted Answer

A)  large budget deficits 
B)  tight monetary policy 
C)  information lags 
D)  covered interest parity 
E)  self-fulfilling prophecies 
A)  large budget deficits 
B)  tight monetary policy 
C)  information lags 
D)  covered interest parity 
E)  self-fulfilling prophecies

Question 7

Sterilized foreign exchange intervention is defined as

Accepted Answer

A)  Intervention that is offset by open market operations that leave the monetary base unchanged 
B)  Intervention that is ineffective 
C)  Intervention that leaves the stock of domestic assets held by the Central Bank unchanged 
D)  Local currency buying intervention 
E)  Foreign currency buying intervention 
A)  Intervention that is offset by open market operations that leave the monetary base unchanged 
B)  Intervention that is ineffective 
C)  Intervention that leaves the stock of domestic assets held by the Central Bank unchanged 
D)  Local currency buying intervention 
E)  Foreign currency buying intervention

Question 8

Under a currency board,a nation's central bank

Accepted Answer

A)  raises or lowers interest rates to keep the exchange rate fixed 
B)  consults with the central banks of other nations to agree upon monetary policy 
C)  operates according to a strict policy rule regarding money supply growth 
D)  uses exchange rates as an intermediate policy target and the inter-bank lending rate as an ultimate target 
E)  serves as the lender of last resort for the banking system 
A)  raises or lowers interest rates to keep the exchange rate fixed 
B)  consults with the central banks of other nations to agree upon monetary policy 
C)  operates according to a strict policy rule regarding money supply growth 
D)  uses exchange rates as an intermediate policy target and the inter-bank lending rate as an ultimate target 
E)  serves as the lender of last resort for the banking system

Question 9

Which of the following does not describe the Asian economies involved in the 1997 currency crisis?

Accepted Answer

A)  banks had borrowed foreign currency and lent in domestic currency, exposing themselves to exchange rate risk 
B)  banks had borrowed on a short term basis and lent on a long term basis 
C)  over-accumulation of physical capital 
D)  high and rapidly rising trade barriers within Asia 
E)  high rates of domestic saving 
A)  banks had borrowed foreign currency and lent in domestic currency, exposing themselves to exchange rate risk 
B)  banks had borrowed on a short term basis and lent on a long term basis 
C)  over-accumulation of physical capital 
D)  high and rapidly rising trade barriers within Asia 
E)  high rates of domestic saving

Question 10

The next questions refer to the following.
Suppose the yen-pound exchange rate is currently £1 = ¥300. A Japanese bank borrows £2 million from UK lenders for 1 year at 6% interest, and lends ¥600 million to Japanese borrowers for 1 year at 8% interest.
-This strategy will fail to yield the bank a profit if

Accepted Answer

A)  the UK inflation rate exceeds 2% during the year 
B)  Japan experiences deflation of 2% or more 
C)  the pound appreciates by 2% 
D)  the yen appreciates by 2% or more 
E)  short term interest rates in the UK rise above 8% 
A)  the UK inflation rate exceeds 2% during the year 
B)  Japan experiences deflation of 2% or more 
C)  the pound appreciates by 2% 
D)  the yen appreciates by 2% or more 
E)  short term interest rates in the UK rise above 8%

Question 11

When a country experiences a currency crisis,the IMF

Accepted Answer

A)  provides loans and grants to the government to purchase and distribute food and other necessities 
B)  purchases the country's currency, to signal international confidence in the currency 
C)  lends foreign reserves to the country's central bank 
D)  makes loans to public and private institutions within the country on a long term basis with relatively few restrictions 
E)  lends funds to neighboring countries, which can then purchase exports from the country experiencing the crisis 
A)  provides loans and grants to the government to purchase and distribute food and other necessities 
B)  purchases the country's currency, to signal international confidence in the currency 
C)  lends foreign reserves to the country's central bank 
D)  makes loans to public and private institutions within the country on a long term basis with relatively few restrictions 
E)  lends funds to neighboring countries, which can then purchase exports from the country experiencing the crisis

Question 12

In first-generation models of currency crises,speculators

Accepted Answer

A)  play no significant role; only the government is to blame 
B)  initiate the crisis, to which the government must then respond 
C)  exacerbate the crisis when foreign reserves are depleted to a critical level 
D)  misinterpret market signals regarding a currency's long run value 
E)  help to stabilize the currency and prevent the financial system from collapsing 
A)  play no significant role; only the government is to blame 
B)  initiate the crisis, to which the government must then respond 
C)  exacerbate the crisis when foreign reserves are depleted to a critical level 
D)  misinterpret market signals regarding a currency's long run value 
E)  help to stabilize the currency and prevent the financial system from collapsing

Question 13

In the long run,the least viable option for an exchange rate regime is probably

Accepted Answer

A)  a single currency 
B)  a currency board 
C)  a target zone 
D)  dollarization 
E)  a pure float 
A)  a single currency 
B)  a currency board 
C)  a target zone 
D)  dollarization 
E)  a pure float

Question 14

Emerging markets undertake capital account liberalization to encourage

Accepted Answer

A)  short term inflows 
B)  long term inflows 
C)  short term outflows 
D)  long term outflows 
E)  all of the above 
A)  short term inflows 
B)  long term inflows 
C)  short term outflows 
D)  long term outflows 
E)  all of the above

Question 15

Which of the following is true of currency crises?

Accepted Answer

A)  They have become less frequent since 1978 
B)  They are often caused by slow, steady, capital inflows 
C)  They generally affect nominal exchange rates but not real exchange rates 
D)  They generally reduce national income 
E)  By making exports inexpensive and imports costly, they stimulate GDP 
A)  They have become less frequent since 1978 
B)  They are often caused by slow, steady, capital inflows 
C)  They generally affect nominal exchange rates but not real exchange rates 
D)  They generally reduce national income 
E)  By making exports inexpensive and imports costly, they stimulate GDP

Question 16

A resource-based Sovereign Wealth Funds can benefit a nation by

Accepted Answer

A)  Converting a temporary resource windfall into a longer term income stream 
B)  Mitigating the 'Dutch disease' 
C)  Investing the proceeds of persistent FX buying by the Central Bank 
D)  Both a) and b) 
E)  Stabilizing the price of the natural resource 
A)  Converting a temporary resource windfall into a longer term income stream 
B)  Mitigating the 'Dutch disease' 
C)  Investing the proceeds of persistent FX buying by the Central Bank 
D)  Both a) and b) 
E)  Stabilizing the price of the natural resource

Question 17

Advocates of capital account liberalization emphasize each of the following except the idea that capital flows

Accepted Answer

A)  enable poor countries to borrow for investment 
B)  smooth consumption in the face of idiosyncratic risk 
C)  impose discipline on policy makers 
D)  increase the depth and sophistication of financial markets 
E)  lead to factor price equalization across countries 
A)  enable poor countries to borrow for investment 
B)  smooth consumption in the face of idiosyncratic risk 
C)  impose discipline on policy makers 
D)  increase the depth and sophistication of financial markets 
E)  lead to factor price equalization across countries

Question 18

Which of the following has not been raised as a criticism of IMF lending?

Accepted Answer

A)  It creates moral hazard among investors by protecting them from losses 
B)  The conditions imposed on recipient governments often go unfulfilled 
C)  The default rates are quite high 
D)  Recipient countries recover somewhat more slowly than non-recipients 
E)  The loans have become so large that the IMF may need to increase its own capital reserves 
A)  It creates moral hazard among investors by protecting them from losses 
B)  The conditions imposed on recipient governments often go unfulfilled 
C)  The default rates are quite high 
D)  Recipient countries recover somewhat more slowly than non-recipients 
E)  The loans have become so large that the IMF may need to increase its own capital reserves

Question 19

The use of a crawling peg refers to

Accepted Answer

A)  sequentially targeting different currencies as exchange rate pegs 
B)  repeated devaluations despite an ostensibly fixed exchange rate 
C)  an annual inflation target of 2%, which allows the price level to creep upward at a deliberate pace 
D)  an exchange rate band which moves over time according to a planned schedule 
E)  the gradually widening gap between the interest rates of 2 countries with a fixed exchange rate, due to a rising risk premium 
A)  sequentially targeting different currencies as exchange rate pegs 
B)  repeated devaluations despite an ostensibly fixed exchange rate 
C)  an annual inflation target of 2%, which allows the price level to creep upward at a deliberate pace 
D)  an exchange rate band which moves over time according to a planned schedule 
E)  the gradually widening gap between the interest rates of 2 countries with a fixed exchange rate, due to a rising risk premium

Question 20

The Bretton Woods system

Accepted Answer

A)  created flexible exchange rates following World War II 
B)  was the predecessor to the North American Free Trade Agreement (NAFT
A)  
C)  replaced the European Exchange Rate Mechanism (ERM) 
D)  tied the dollar to gold and other currencies to the dollar 
E)  is the clearinghouse process by which nations buy and sell reserves of foreign currency 
A)  created flexible exchange rates following World War II 
B)  was the predecessor to the North American Free Trade Agreement (NAFT
A)  
C)  replaced the European Exchange Rate Mechanism (ERM) 
D)  tied the dollar to gold and other currencies to the dollar 
E)  is the clearinghouse process by which nations buy and sell reserves of foreign currency

Nations adopting currency boards have tended to experience

A Sovereign Wealth Fund is generally defined as

Which of the following conditions would make fixed exchange rates relatively unattractive for a nation?

First generation models of currency crises can most reliably explain

Under which of the following exchange rate systems does a country,in effect,close down its central bank?

The central feature of second-generation currency crisis models is

Sterilized foreign exchange intervention is defined as

Under a currency board,a nation's central bank

Which of the following does not describe the Asian economies involved in the 1997 currency crisis?

When a country experiences a currency crisis,the IMF

In first-generation models of currency crises,speculators

In the long run,the least viable option for an exchange rate regime is probably

Emerging markets undertake capital account liberalization to encourage

Which of the following is true of currency crises?

A resource-based Sovereign Wealth Funds can benefit a nation by

Advocates of capital account liberalization emphasize each of the following except the idea that capital flows

Which of the following has not been raised as a criticism of IMF lending?

The use of a crawling peg refers to

The Bretton Woods system

What Is Macroeconomics

The Language of Macroeconomicsthe National Income Accounts

The Wealth of Nationsthe Supply Side

Capital Accumulation and Economic Growth

Total Factor Productivity, human Capital, and Technology

Endogenous Growth and Convergence

Unemployment and the Labor Market

International Trade

Globalization

Consumption Investment

Business Cycles

Money and Prices

Monetary Policy

Fiscal Policy and the Role of Government

Stabilization Policy

Financial Markets: Equities and Bonds

The Banking Sector

Sovereign Debt and Default

Exchange Rate Determination I the Real Exchange Rate

Exchange Rate Determination Iinominal Exchange Rates and Asset Markets

Filters

Exam 21: Currency Crises and Exchange Rate Systems

Nations adopting currency boards have tended to experience

A Sovereign Wealth Fund is generally defined as

Which of the following conditions would make fixed exchange rates relatively unattractive for a nation?

First generation models of currency crises can most reliably explain

Under which of the following exchange rate systems does a country,in effect,close down its central bank?

The central feature of second-generation currency crisis models is

Sterilized foreign exchange intervention is defined as

Under a currency board,a nation's central bank

Which of the following does not describe the Asian economies involved in the 1997 currency crisis?

When a country experiences a currency crisis,the IMF

In first-generation models of currency crises,speculators

In the long run,the least viable option for an exchange rate regime is probably

Emerging markets undertake capital account liberalization to encourage

Which of the following is true of currency crises?

A resource-based Sovereign Wealth Funds can benefit a nation by

Advocates of capital account liberalization emphasize each of the following except the idea that capital flows

Which of the following has not been raised as a criticism of IMF lending?

The use of a crawling peg refers to

The Bretton Woods system

What Is Macroeconomics

The Language of Macroeconomicsthe National Income Accounts

The Wealth of Nationsthe Supply Side

Capital Accumulation and Economic Growth

Total Factor Productivity, human Capital, and Technology

Endogenous Growth and Convergence

Unemployment and the Labor Market

International Trade

Globalization

Consumption Investment

Business Cycles

Money and Prices

Monetary Policy

Fiscal Policy and the Role of Government

Stabilization Policy

Financial Markets: Equities and Bonds

The Banking Sector

Sovereign Debt and Default

Exchange Rate Determination I the Real Exchange Rate

Exchange Rate Determination Iinominal Exchange Rates and Asset Markets

Filters