Question 1

Under the Bretton Woods system, international debts were settled in:

Accepted Answer

A) gold. 
B) U.S.dollars. 
C) British pounds. 
D) silver. 
E) German marks. 
A) gold. 
B) U.S.dollars. 
C) British pounds. 
D) silver. 
E) German marks.

Question 2

When an exchange rate is established as a fixed peg, active intervention may be required to maintain the target-pegged rate.

Accepted Answer

A) True 
 B)False

Question 3

Purchasing power parity exists when domestic currency:

Accepted Answer

A) maintains a fixed exchange rate with foreign currency. 
B) is not convertible into foreign currency. 
C) buys more goods at home than abroad. 
D) buys as many goods at home as it does abroad. 
E) appreciates in value against foreign currency. 
A) maintains a fixed exchange rate with foreign currency. 
B) is not convertible into foreign currency. 
C) buys more goods at home than abroad. 
D) buys as many goods at home as it does abroad. 
E) appreciates in value against foreign currency.

Question 4

Equilibrium in the foreign exchange market occurs:

Accepted Answer

A) at the point where the foreign exchange demand and supply curves intersect. 
B) at the point where the foreign exchange demand and supply curves reach maximum separation. 
C) when two nations' economic leaders agree on the appropriate exchange rate. 
D) when two nations' diplomatic leaders agree on an exchange rate that meets both countries' needs. 
E) only by chance, if at all, because they change very frequently. 
A) at the point where the foreign exchange demand and supply curves intersect. 
B) at the point where the foreign exchange demand and supply curves reach maximum separation. 
C) when two nations' economic leaders agree on the appropriate exchange rate. 
D) when two nations' diplomatic leaders agree on an exchange rate that meets both countries' needs. 
E) only by chance, if at all, because they change very frequently.

Question 5

A country on a gold standard was able to maintain people's confidence in the value of its currency by:

Accepted Answer

A) printing more and more paper money. 
B) restricting international exchange of goods and services. 
C) ensuring the convertibility of paper money into gold. 
D) maintaining a fixed stock of foreign currencies. 
E) ensuring balance of payment surplus. 
A) printing more and more paper money. 
B) restricting international exchange of goods and services. 
C) ensuring the convertibility of paper money into gold. 
D) maintaining a fixed stock of foreign currencies. 
E) ensuring balance of payment surplus.

Question 6

The figure given below depicts the demand and supply of Brazilian reals in the foreign exchange market.Assume that the market operates under a flexible exchange rate regime. Figure 36.1   In the figure:
D1 and D2: Demand for Brazilian reals
S1 and S2: Supply of Brazilian reals
Refer to Figure 36.1.Assume that the initial equilibrium exchange rate is 8 Mexican pesos per Brazilian real and 150 brazilian reals are traded in the market.Suppose, there is an increase in the Brazilian demand for Mexican exports.Other things remaining equal, which of the following can be concluded?

Accepted Answer

A) The demand curve for Brazilian reals will shift to the the right. 
B) The supply curve of Brazilian reals will shift to the the right. 
C) The Mexican pesos will depreciate in value. 
D) The Brazilian reals will appreciate in value. 
E) Around 100 Brazilian reals will be traded in the forex market. 
A) The demand curve for Brazilian reals will shift to the the right. 
B) The supply curve of Brazilian reals will shift to the the right. 
C) The Mexican pesos will depreciate in value. 
D) The Brazilian reals will appreciate in value. 
E) Around 100 Brazilian reals will be traded in the forex market.

Question 7

Which of the following was the reserve currency under the gold exchange standard?

Accepted Answer

A) U.S.dollar 
B) Euro 
C) Great Britain pound 
D) Australian dollar 
E) Deutsche mark 
A) U.S.dollar 
B) Euro 
C) Great Britain pound 
D) Australian dollar 
E) Deutsche mark

Question 8

No currency ever appreciated or depreciated under the Bretton Woods system as it was based on a system of fixed exchange rates.

Accepted Answer

A) True 
 B)False

Question 9

Suppose purchasing power parity exists in the car stereo market in the United States and Australia.If a car stereo costs $230 in the United States and the exchange rate is $1 = $AUD1.67, the same car stereo may be purchased in Australia for approximately:

Accepted Answer

A) $AUD 138. 
B) $AUD 230. 
C) $AUD 2, 300. 
D) $AUD 384. 
E) $AUD 108. 
A) $AUD 138. 
B) $AUD 230. 
C) $AUD 2, 300. 
D) $AUD 384. 
E) $AUD 108.

Question 10

An Australian investor buys a U.S.Treasury bond that has a price of $10, 000, pays 5 percent interest, and matures in a year.Between the purchase date and the maturity date, the exchange rate changes from $1 = AUD 5.0 to $1= AUD 5.2.What will be the Australian investor's rate of return from the U.S.bond?

Accepted Answer

A) 4 percent 
B) 7 percent 
C) 9.2 percent 
D) 12 percent 
E) 25 percent 
A) 4 percent 
B) 7 percent 
C) 9.2 percent 
D) 12 percent 
E) 25 percent

Question 11

A decrease in the price of a currency in terms of another under a flexible exchange rate regimeis called:

Accepted Answer

A) capital flight. 
B) depreciation. 
C) revaluation. 
D) devaluation. 
E) currency adjustment. 
A) capital flight. 
B) depreciation. 
C) revaluation. 
D) devaluation. 
E) currency adjustment.

Question 12

Suppose a Japanese investor purchases a dollar deposit that yields 5 percent interest at the end of a year.What will be the approximate return in terms of yen at maturity if the exchange rate moves from $1 = ¥100 to $1 = ¥105 during the year?

Accepted Answer

A) 1 percent 
B) 5 percent 
C) 10 percent 
D) 20 percent 
E) 0 percent 
A) 1 percent 
B) 5 percent 
C) 10 percent 
D) 20 percent 
E) 0 percent

Question 13

If the price of an ounce of gold is 200 ZARs in South Africa and $75 in Canada, what will be the South African Rand (ZAR)per Canadian dollar (C$)exchange rate?

Accepted Answer

A) C$1 = 4.25 ZAR 
B) C$1 = 1.75 ZAR 
C) C$1 = 2 ZAR 
D) C$1 = 2.67 ZAR 
E) C$1 = 4 ZAR 
A) C$1 = 4.25 ZAR 
B) C$1 = 1.75 ZAR 
C) C$1 = 2 ZAR 
D) C$1 = 2.67 ZAR 
E) C$1 = 4 ZAR

Question 14

The Bretton Woods system required countries to actively buy and sell dollars to maintain fixed exchange rates when:

Accepted Answer

A) a country experienced a severe bout of inflation. 
B) the free market equilibrium exchange rate differed from the fixed rate. 
C) a country experienced serious unemployment. 
D) the threat of recession began to spread from one country to another. 
E) worldwide trade began to deteriorate. 
A) a country experienced a severe bout of inflation. 
B) the free market equilibrium exchange rate differed from the fixed rate. 
C) a country experienced serious unemployment. 
D) the threat of recession began to spread from one country to another. 
E) worldwide trade began to deteriorate.

Question 15

When the exchange rate fluctuates around a fixed central target, allowing for a moderate amount of fluctuation, while tying the currency to the target central rate, the exchange rate is under:

Accepted Answer

A) a horizontal band. 
B) a crawling peg. 
C) a managed float. 
D) an independent float. 
E) a currency board. 
A) a horizontal band. 
B) a crawling peg. 
C) a managed float. 
D) an independent float. 
E) a currency board.

Question 16

The annual membership fees of the 185 member countries of the IMF are called:

Accepted Answer

A) annuities. 
B) quotas. 
C) vetos. 
D) conditionalities. 
E) petrodollars. 
A) annuities. 
B) quotas. 
C) vetos. 
D) conditionalities. 
E) petrodollars.

Question 17

A fixed exchange rate can be an equilibrium rate even if there is a permanent shift in the foreign exchange market supply and demand curves.

Accepted Answer

A) True 
 B)False

Question 18

Because of their greediness, speculators are considered bad for exchange-rate markets.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following can be categorized as a commodity money standard?

Accepted Answer

A) The pegged exchange rate standard 
B) The free float standard 
C) The managed float standard 
D) The reserve currency standard 
E) The gold standard 
A) The pegged exchange rate standard 
B) The free float standard 
C) The managed float standard 
D) The reserve currency standard 
E) The gold standard

Question 20

Purchasing power parity holds when the exchange rate is equal to the product of the foreign price level and the domestic price level.

Accepted Answer

A) True 
 B)False

Exam 57: Exchange Rates and Financial Links Between Countries

Under the Bretton Woods system, international debts were settled in:

When an exchange rate is established as a fixed peg, active intervention may be required to maintain the target-pegged rate.

Purchasing power parity exists when domestic currency:

Equilibrium in the foreign exchange market occurs:

A country on a gold standard was able to maintain people's confidence in the value of its currency by:

Which of the following was the reserve currency under the gold exchange standard?

No currency ever appreciated or depreciated under the Bretton Woods system as it was based on a system of fixed exchange rates.

Suppose purchasing power parity exists in the car stereo market in the United States and Australia.If a car stereo costs $230 in the United States and the exchange rate is $1 = $AUD1.67, the same car stereo may be purchased in Australia for approximately:

A decrease in the price of a currency in terms of another under a flexible exchange rate regimeis called:

Suppose a Japanese investor purchases a dollar deposit that yields 5 percent interest at the end of a year.What will be the approximate return in terms of yen at maturity if the exchange rate moves from $1 = ¥100 to $1 = ¥105 during the year?

If the price of an ounce of gold is 200 ZARs in South Africa and $75 in Canada, what will be the South African Rand (ZAR)per Canadian dollar (C$)exchange rate?

The Bretton Woods system required countries to actively buy and sell dollars to maintain fixed exchange rates when:

When the exchange rate fluctuates around a fixed central target, allowing for a moderate amount of fluctuation, while tying the currency to the target central rate, the exchange rate is under:

The annual membership fees of the 185 member countries of the IMF are called:

A fixed exchange rate can be an equilibrium rate even if there is a permanent shift in the foreign exchange market supply and demand curves.

Because of their greediness, speculators are considered bad for exchange-rate markets.

Which of the following can be categorized as a commodity money standard?

Purchasing power parity holds when the exchange rate is equal to the product of the foreign price level and the domestic price level.

Economics: The World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

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