Exam 19: The International Financial System

A persistent surplus of pounds at a given fixed exchange rate (in dollars per pound)is evidence that the pound is ________ versus the dollar.This surplus can be reduced or eliminated through a ________ of the pound.

Purchasing power parity is the theory that,in the long run,exchange rates move to equalize

Firms in Thailand that had ________ while the baht was pegged to the dollar faced interest payments that were higher than they had planned once the Thai government abandoned the peg because the baht had been pegged ________ the equilibrium exchange rate for the baht.

If a country sets a pegged exchange rate that is below the equilibrium exchange rate,how can the country maintain the peg?

In order to reduce or eliminate a chronic shortage in the market for a currency under a fixed exchange rate system,we must devalue the currency.

Figure 19-3 -Refer to Figure 19-3.If the Thai government pegs its currency to the dollar at a value above $.03/baht,we would say the currency is

Before 1980,most U.S.corporations raised funds

The Bretton Woods system of fixed exchange rates was set up in

When foreign investors in Thailand began to realize that Thailand could not maintain its peg to the dollar indefinitely,they began to sell off their investments in Thailand and exchange the baht they received for dollars.This reduction in investment by foreigners is termed

China began pegging its currency,the yuan,to the dollar in 1994.Because the yuan was ________ at the pegged exchange rate,the level of Chinese exports remained ________ than they would have been if the exchange rate were allowed to float freely.

If one U.S.dollar could be exchanged for one Australian dollar in 1970,and one U.S.dollar can now be exchanged for 0.98 Australian dollars,which of the following is true?

Under the gold standard,the government must have enough gold to back up any

The currencies of Poland and Iceland (the zloty and the krona,respectively)declined in value relative to the euro following the financial crisis of 2008.This means that the

Table 19-1 Source: "The Big Mac Index," Economist,July 11,2013. -Refer to Table 19-1.Fill in the missing values in the above table.Assume the Big Mac is selling for $4.56 in the United States.Explain whether the U.S.dollar is overvalued or undervalued relative to each of the other currencies and predict what will happen in the future to each exchange rate.

A persistent shortage or surplus of a currency under the Bretton Woods system was evidence of

China began pegging its currency,the yuan,to the dollar in 1994.Because the yuan has been ________ at the pegged exchange rate,the Chinese government ________ its reserves of dollars as the government purchased more ________ to maintain the pegged exchange rate.

European governments removed many restrictions on flows of capital into and out of Europe in the ________.This policy increased both U.S.investment in European stocks and bonds and European investment in U.S.stocks and bonds.

Investors in which two countries accounted for about 25 percent of all foreign purchases of U.S.stocks and bonds in 2012?

One reason that Iceland recovered from the financial crisis which began in 2007 more quickly than did countries like Greece,Spain,and Italy is that Iceland does not use the euro,and the value of its currency was able to ________ versus the euro,which increased its ________.

Figure 19-5 -Refer to Figure 19-5.The Chinese government pegs the yuan to the dollar,at one of the specified exchange rates on the graph,such that it undervalues its currency.Using the figure above,this would generate