Question 1

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 2

The exchange rate that is established in the absence of foreign exchange market intervention by the government is known as a(n):

Accepted Answer

A) historical anachronism. 
B) fixed exchange rate. 
C) "dirty float" exchange rate. 
D) unmanaged exchange rate. 
E) free market equilibrium exchange rate. 
A) historical anachronism. 
B) fixed exchange rate. 
C) "dirty float" exchange rate. 
D) unmanaged exchange rate. 
E) free market equilibrium exchange rate.

Question 3

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 4

World Bank funds are largely acquired through interest earned on the deposits of member nations.

Accepted Answer

A) True 
 B)False

Question 5

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 6

The exchange rate affects the trade in goods and services between California and NewYork.

Accepted Answer

A) True 
 B)False

Question 7

Fixed exchange rates require the economic policies of countries linked by the exchange rate to be:

Accepted Answer

A) completely independent. 
B) complementary to each other. 
C) determined by the World Bank. 
D) similar in nature. 
E) determined by the International Monetary Fund. 
A) completely independent. 
B) complementary to each other. 
C) determined by the World Bank. 
D) similar in nature. 
E) determined by the International Monetary Fund.

Question 8

Under both the gold standard and the gold exchange standard countries bought and sold U.S.dollars to maintain a fixed exchange rate with the dollar.

Accepted Answer

A) True 
 B)False

Question 9

Currency speculators are traders who seek to profit from a(n):

Accepted Answer

A) shift in global demand and supply patterns. 
B) increase in the price of oil. 
C) sudden shift in interest rates. 
D) exchange rate change by selling the currency expected to appreciate and buying the currency expected to depreciate. 
E) exchange rate change by selling the currency expected to depreciate and buying the currency expected to appreciate. 
A) shift in global demand and supply patterns. 
B) increase in the price of oil. 
C) sudden shift in interest rates. 
D) exchange rate change by selling the currency expected to appreciate and buying the currency expected to depreciate. 
E) exchange rate change by selling the currency expected to depreciate and buying the currency expected to appreciate.

Question 10

Demand for U.S.dollars by speculators is likely to increase if the dollar is expected to depreciate in the near future.

Accepted Answer

A) True 
 B)False

Question 11

Suppose the 12-month interest rate on a U.S.Treasury bill is 16 percent, and the one-year interest rate on a comparable British Treasury bill is 6 percent.The exchange rate today is $2.00 per pound.What must be the expected exchange rate at maturity for interest rate parity to hold?

Accepted Answer

A) $1.00 = 0.50 pound 
B) $1.00 = 0.75 pound 
C) 1 pound = $2.20 
D) 1 pound = $1.80 
E) 1 pound = $2.50 
A) $1.00 = 0.50 pound 
B) $1.00 = 0.75 pound 
C) 1 pound = $2.20 
D) 1 pound = $1.80 
E) 1 pound = $2.50

Question 12

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 13

A permanent shift in the foreign exchange market supply and demand curves such that the fixed exchange rate is no longer an equilibrium rate is referred to as:

Accepted Answer

A) permanent devaluation. 
B) speculative disequilibrium. 
C) permanent revaluation. 
D) speculative equilibrium. 
E) fundamental disequilibrium. 
A) permanent devaluation. 
B) speculative disequilibrium. 
C) permanent revaluation. 
D) speculative equilibrium. 
E) fundamental disequilibrium.

Question 14

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 21.1   In the figure:
D1 and D2: Demand for Brazilian reals
S1 and S2: Supply of Brazilian reals
Refer to Figure 21.1.The demand curves shown for Brazilian reals are based on:

Accepted Answer

A) the supply of Brazilian reals in the market. 
B) the demand for Mexican pesos. 
C) Brazilian demand for Brazilian products. 
D) Brazilian demand for Mexican products. 
E) Mexican demand for Brazilian products. 
A) the supply of Brazilian reals in the market. 
B) the demand for Mexican pesos. 
C) Brazilian demand for Brazilian products. 
D) Brazilian demand for Mexican products. 
E) Mexican demand for Brazilian products.

Question 15

When a U.S.importer needs $20, 000 to settle an invoice for 228, 000 Uruguayan pesos, the price of 1 dollar is 11.4 Uruguayan pesos.

Accepted Answer

A) True 
 B)False

Question 16

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 17

When the exchange rate moves from $1 = CAD1.5 to $1 = CAD1.66, it implies:

Accepted Answer

A) the U.S.dollar has depreciated in relation to the Canadian dollar. 
B) U.S.imports of Canadian goods will rise. 
C) the dollar price of the Canadian dollar has risen. 
D) the Canadian dollar has appreciated in relation to the U.S.dollar. 
E) Canadian imports of U.S.goods will rise. 
A) the U.S.dollar has depreciated in relation to the Canadian dollar. 
B) U.S.imports of Canadian goods will rise. 
C) the dollar price of the Canadian dollar has risen. 
D) the Canadian dollar has appreciated in relation to the U.S.dollar. 
E) Canadian imports of U.S.goods will rise.

Question 18

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 21.2   Refer to Figure 21.2.Suppose S1 is the initial supply curve and the British demand for U.S.manufactured computers decreases.Then, with flexible exchange rates:

Accepted Answer

A) the price per British pound decreases by $0.10 and the quantity of British pounds increases by 50. 
B) the price per British pound decreases by $0.10 and the quantity of British pounds decreases by 50. 
C) the price per British pound increases by $0.15 and the quantity of British pounds decreases by 50. 
D) the price per British pound increases by $0.15 and the quantity of British pounds decreases by 75. 
E) the price per British pound and the quantity of British pounds remain unchanged. 
A) the price per British pound decreases by $0.10 and the quantity of British pounds increases by 50. 
B) the price per British pound decreases by $0.10 and the quantity of British pounds decreases by 50. 
C) the price per British pound increases by $0.15 and the quantity of British pounds decreases by 50. 
D) the price per British pound increases by $0.15 and the quantity of British pounds decreases by 75. 
E) the price per British pound and the quantity of British pounds remain unchanged.

Question 19

Which of the following exchange rate systems have a legislative commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate?

Accepted Answer

A) Gold standard 
B) Gold exchange standard 
C) Crawling band 
D) Horizontal band 
E) Currency board 
A) Gold standard 
B) Gold exchange standard 
C) Crawling band 
D) Horizontal band 
E) Currency board

Question 20

Under a floating exchange-rate system, a country needs to pay more attention to the economic policies of the rest of the world.

Accepted Answer

A) True 
 B)False

Exam 39: Exchange Rates and Financial Links Between Countries

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

The exchange rate that is established in the absence of foreign exchange market intervention by the government is known as a(n):

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

World Bank funds are largely acquired through interest earned on the deposits of member nations.

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 exchange rate affects the trade in goods and services between California and NewYork.

Fixed exchange rates require the economic policies of countries linked by the exchange rate to be:

Under both the gold standard and the gold exchange standard countries bought and sold U.S.dollars to maintain a fixed exchange rate with the dollar.

Currency speculators are traders who seek to profit from a(n):

Demand for U.S.dollars by speculators is likely to increase if the dollar is expected to depreciate in the near future.

Suppose the 12-month interest rate on a U.S.Treasury bill is 16 percent, and the one-year interest rate on a comparable British Treasury bill is 6 percent.The exchange rate today is $2.00 per pound.What must be the expected exchange rate at maturity for interest rate parity to hold?

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

A permanent shift in the foreign exchange market supply and demand curves such that the fixed exchange rate is no longer an equilibrium rate is referred to as:

When a U.S.importer needs $20, 000 to settle an invoice for 228, 000 Uruguayan pesos, the price of 1 dollar is 11.4 Uruguayan pesos.

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

When the exchange rate moves from $1 = CAD1.5 to $1 = CAD1.66, it implies:

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 21.2 Refer to Figure 21.2.Suppose S1 is the initial supply curve and the British demand for U.S.manufactured computers decreases.Then, with flexible exchange rates:

Which of the following exchange rate systems have a legislative commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate?

Under a floating exchange-rate system, a country needs to pay more attention to the economic policies of the rest of the world.

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

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

Exchange Rates and Financial Links Between Countries

Filters

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 21.2 Refer to Figure 21.2.Suppose S₁ is the initial supply curve and the British demand for U.S.manufactured computers decreases.Then, with flexible exchange rates: