Question 1

The Australian dollar is currently regarded is the key currency of the international monetary system.

Accepted Answer

A) True 
 B)False  False

Question 2

What is the difference between the crawling peg and adjustable pegged exchange rates?

Accepted Answer

Under the adjustable peg,currencies are tied to a par value that changes infrequently but suddenly,usually in large jumps.The crawling peg allows a nation to make small changes in par values,perhaps several times a year,so that they creep along slowly in response to evolving market conditions.

Question 3

Figure 15.1 shows the market for the Swiss franc. In the figure, the initial demand for marks and supply of marks are depicted by D? and S? respectively.
Figure 15.1. The Market for the Swiss Franc
  
-Refer to Figure 15.1.Suppose the demand for francs increases from D? to D?.Under a fixed exchange rate system,the U.S.exchange stabilization fund could maintain a fixed exchange rate of $0.50 per franc by:

Accepted Answer

A)  Selling francs for dollars on the foreign exchange market 
B)  Selling dollars for francs on the foreign exchange market 
C)  Decreasing U.S. exports, thus decreasing the supply of francs 
D)  Stimulating U.S. imports, thus increasing the demand for francs 
A)  Selling francs for dollars on the foreign exchange market 
B)  Selling dollars for francs on the foreign exchange market 
C)  Decreasing U.S. exports, thus decreasing the supply of francs 
D)  Stimulating U.S. imports, thus increasing the demand for francs A

Question 4

Pegging to a single currency is generally done by developing nations whose trade and financial relationships are mainly with a single industrial-country partner.

Accepted Answer

A) True 
 B)False

Question 5

A surplus nation can reduce its payments imbalance by:

Accepted Answer

A)  Applying tariffs and trade restrictions on imports 
B)  Revaluing its national currency 
C)  Increasing its labor productivity 
D)  Setting higher interest rates than its trading partners 
A)  Applying tariffs and trade restrictions on imports 
B)  Revaluing its national currency 
C)  Increasing its labor productivity 
D)  Setting higher interest rates than its trading partners

Question 6

In order to stabilize a currency,the central bank will need to adopt

Accepted Answer

A)  An expansionary monetary policy to offset currency depreciation 
B)  An expansionary monetary policy to offset currency appreciation 
C)  A contractionary policy to offset currency appreciation 
D)  Both b and c 
A)  An expansionary monetary policy to offset currency depreciation 
B)  An expansionary monetary policy to offset currency appreciation 
C)  A contractionary policy to offset currency appreciation 
D)  Both b and c

Question 7

To keep the pound's exchange value from depreciating against the franc,the British exchange stabilization fund would sell pounds for francs on the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 8

Which exchange-rate mechanism calls for frequent redefining of the par value by small amounts to remove a payments disequilibrium?

Accepted Answer

A)  Dual exchange rates 
B)  Adjustable pegged exchange rates 
C)  Managed floating exchange rates 
D)  Crawling pegged exchange rates 
A)  Dual exchange rates 
B)  Adjustable pegged exchange rates 
C)  Managed floating exchange rates 
D)  Crawling pegged exchange rates

Question 9

To offset an appreciation in the dollar's exchange value,the Federal Reserve can nudge interest rates down in the United States which results in net investment outflows.

Accepted Answer

A) True 
 B)False

Question 10

Under a floating exchange rate system,if there occurs a fall in the dollar price of the franc:

Accepted Answer

A)  American exports to France will be cheaper in francs 
B)  American exports to France will be more expensive in francs 
C)  American imports from France will be more expensive in dollars 
D)  None of the above 
A)  American exports to France will be cheaper in francs 
B)  American exports to France will be more expensive in francs 
C)  American imports from France will be more expensive in dollars 
D)  None of the above

Question 11

In 1973 the major industrial countries terminated managed-floating exchange rates and adopted an adjustable-pegged exchange rates.

Accepted Answer

A) True 
 B)False

Question 12

Developing countries with more than one major trading partner often peg their currencies to a group or basket of those trading partner currencies.

Accepted Answer

A) True 
 B)False

Question 13

In a managed floating exchange-rate system,temporary stabilization of the dollar's exchange value requires the Federal Reserve to adopt a (an)____ monetary policy when the dollar is appreciating and a (an)____ policy when the dollar is depreciating.

Accepted Answer

A)  Expansionary, expansionary 
B)  Expansionary, contractionary 
C)  Contractionary, expansionary 
D)  Contractionary, contractionary 
A)  Expansionary, expansionary 
B)  Expansionary, contractionary 
C)  Contractionary, expansionary 
D)  Contractionary, contractionary

Question 14

If the Japanese yen appreciates against other currencies in the exchange markets,this will:

Accepted Answer

A)  Have no effect on the Japanese balance of trade 
B)  Tend to improve the Japanese balance of trade 
C)  Tend to worsen the Japanese balance of trade 
D)  None of the above 
A)  Have no effect on the Japanese balance of trade 
B)  Tend to improve the Japanese balance of trade 
C)  Tend to worsen the Japanese balance of trade 
D)  None of the above

Question 15

The par values of most developing-country currencies are currently defined in terms of gold.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is not a potential disadvantage of freely floating exchange rates?

Accepted Answer

A)  They require larger amounts of international reserves than other exchange systems 
B)  Demand schedules for imports and exports may be price speculation 
C)  There may occur large amounts of destabilizing speculation 
D)  Capital movements among nations may be hindered via exchange rate fluctuations 
A)  They require larger amounts of international reserves than other exchange systems 
B)  Demand schedules for imports and exports may be price speculation 
C)  There may occur large amounts of destabilizing speculation 
D)  Capital movements among nations may be hindered via exchange rate fluctuations

Question 17

Figure 15.1 shows the market for the Swiss franc. In the figure, the initial demand for marks and supply of marks are depicted by D? and S? respectively.
Figure 15.1. The Market for the Swiss Franc
  
-Refer to Figure 15.1.Suppose the United States decreases investment spending in Switzerland,thus reducing the demand for francs from D? to D?.Under a floating exchange rate system,the new equilibrium exchange rate would be:

Accepted Answer

A)  $0.40 per franc 
B)  $0.50 per franc 
C)  $0.60 per franc 
D)  $0.70 per franc 
A)  $0.40 per franc 
B)  $0.50 per franc 
C)  $0.60 per franc 
D)  $0.70 per franc

Question 18

Most nations currently allow their currencies' exchange values to be determined solely by the forces of supply and demand in a free market.

Accepted Answer

A) True 
 B)False

Question 19

Small nations,such as Angola and Barbados,peg their currencies to the U.S.dollar since the prices of many of their traded goods are determined in markets in which the dollar is the key currency.

Accepted Answer

A) True 
 B)False

Question 20

How can currency boards and dollarization prevent currency crises?

Accepted Answer

A currency board is a monetary authority

The Australian dollar is currently regarded is the key currency of the international monetary system.

What is the difference between the crawling peg and adjustable pegged exchange rates?

Pegging to a single currency is generally done by developing nations whose trade and financial relationships are mainly with a single industrial-country partner.

A surplus nation can reduce its payments imbalance by:

In order to stabilize a currency,the central bank will need to adopt

To keep the pound's exchange value from depreciating against the franc,the British exchange stabilization fund would sell pounds for francs on the foreign exchange market.

Which exchange-rate mechanism calls for frequent redefining of the par value by small amounts to remove a payments disequilibrium?

To offset an appreciation in the dollar's exchange value,the Federal Reserve can nudge interest rates down in the United States which results in net investment outflows.

Under a floating exchange rate system,if there occurs a fall in the dollar price of the franc:

In 1973 the major industrial countries terminated managed-floating exchange rates and adopted an adjustable-pegged exchange rates.

Developing countries with more than one major trading partner often peg their currencies to a group or basket of those trading partner currencies.

In a managed floating exchange-rate system,temporary stabilization of the dollar's exchange value requires the Federal Reserve to adopt a (an) monetary policy when the dollar is appreciating and a (an) policy when the dollar is depreciating.

If the Japanese yen appreciates against other currencies in the exchange markets,this will:

The par values of most developing-country currencies are currently defined in terms of gold.

Which of the following is not a potential disadvantage of freely floating exchange rates?

Most nations currently allow their currencies' exchange values to be determined solely by the forces of supply and demand in a free market.

Small nations,such as Angola and Barbados,peg their currencies to the U.S.dollar since the prices of many of their traded goods are determined in markets in which the dollar is the key currency.

How can currency boards and dollarization prevent currency crises?

the International Economy and Globalization

Foundations of Modern Trade Theory: Comparative Advantage

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

Regional Trading Arrangements

International Factor Movements and Multinational Enterprises

the Balance of Payments

Foreign Exchange

Exchange-rate Determination

Balance-of-payments Adjustments

Exchange-rate Adjustments and the Balance of Payments

Macroeconomic Policy in an Open Economy

International Banking: Reserves, debt, and Risk

Filters

Exam 15: Exchange-rate Systems and Currency Crises

The Australian dollar is currently regarded is the key currency of the international monetary system.

What is the difference between the crawling peg and adjustable pegged exchange rates?

Pegging to a single currency is generally done by developing nations whose trade and financial relationships are mainly with a single industrial-country partner.

A surplus nation can reduce its payments imbalance by:

In order to stabilize a currency,the central bank will need to adopt

To keep the pound's exchange value from depreciating against the franc,the British exchange stabilization fund would sell pounds for francs on the foreign exchange market.

Which exchange-rate mechanism calls for frequent redefining of the par value by small amounts to remove a payments disequilibrium?

To offset an appreciation in the dollar's exchange value,the Federal Reserve can nudge interest rates down in the United States which results in net investment outflows.

Under a floating exchange rate system,if there occurs a fall in the dollar price of the franc:

In 1973 the major industrial countries terminated managed-floating exchange rates and adopted an adjustable-pegged exchange rates.

Developing countries with more than one major trading partner often peg their currencies to a group or basket of those trading partner currencies.

In a managed floating exchange-rate system,temporary stabilization of the dollar's exchange value requires the Federal Reserve to adopt a (an)____ monetary policy when the dollar is appreciating and a (an)____ policy when the dollar is depreciating.

If the Japanese yen appreciates against other currencies in the exchange markets,this will:

The par values of most developing-country currencies are currently defined in terms of gold.

Which of the following is not a potential disadvantage of freely floating exchange rates?

Most nations currently allow their currencies' exchange values to be determined solely by the forces of supply and demand in a free market.

Small nations,such as Angola and Barbados,peg their currencies to the U.S.dollar since the prices of many of their traded goods are determined in markets in which the dollar is the key currency.

How can currency boards and dollarization prevent currency crises?

the International Economy and Globalization

Foundations of Modern Trade Theory: Comparative Advantage

Sources of Comparative Advantage

Tariffs

Nontariff Trade Barriers

Trade Regulations and Industrial Policies

Trade Policies for the Developing Nations

Regional Trading Arrangements

International Factor Movements and Multinational Enterprises

the Balance of Payments

Foreign Exchange

Exchange-rate Determination

Balance-of-payments Adjustments

Exchange-rate Adjustments and the Balance of Payments

Macroeconomic Policy in an Open Economy

International Banking: Reserves, debt, and Risk

Filters

In a managed floating exchange-rate system,temporary stabilization of the dollar's exchange value requires the Federal Reserve to adopt a (an) monetary policy when the dollar is appreciating and a (an) policy when the dollar is depreciating.