Question 1

Imperfect asset substitutability assumes

Accepted Answer

A)  the returns on foreign and domestic currency bonds are identical. 
B)  the returns on foreign and domestic currency are unrelated. 
C)  the risks of holding foreign and domestic currency are identical. 
D)  the risks of holding foreign and domestic currency are unrelated to returns. 
E)  the returns on foreign and domestic currency differ and are influenced by risk. 
A)  the returns on foreign and domestic currency bonds are identical. 
B)  the returns on foreign and domestic currency are unrelated. 
C)  the risks of holding foreign and domestic currency are identical. 
D)  the risks of holding foreign and domestic currency are unrelated to returns. 
E)  the returns on foreign and domestic currency differ and are influenced by risk.

Question 2

Balance of payments crises under fixed exchange rates occur because of

Accepted Answer

A)  government policies that are inconsistent with fixed exchange rates. 
B)  punitive currency wars. 
C)  global inflation and trade imbalances due to war. 
D)  excessive exports and imports that overload the global system. 
E)  monotonic expansion in global currency volume. 
A)  government policies that are inconsistent with fixed exchange rates. 
B)  punitive currency wars. 
C)  global inflation and trade imbalances due to war. 
D)  excessive exports and imports that overload the global system. 
E)  monotonic expansion in global currency volume.

Question 3

Briefly discuss the main advantage of the bimetallic standard over the gold standard.

Accepted Answer

The advantage of bimetallism was that it

Question 4

Use a figure to explain the potential effectiveness of fiscal policy to spur on the economy under a fixed exchange rate.

Accepted Answer

@#IMG-DLM& With an aim toward increasing output, t

Question 5

List the drawbacks of the gold standard.

Accepted Answer

1. Undesirable constraints on the use of

Question 6

Currency crises may result from

Accepted Answer

A)  central bank balance sheets with higher liabilities than assets. 
B)  political upheaval leading to lowering exports. 
C)  a reconfiguration of central bank balance sheets. 
D)  speculative attacks on the currency or central banks purchasing excessive amounts of government bonds. 
E)  depreciation of foreign reserves. 
A)  central bank balance sheets with higher liabilities than assets. 
B)  political upheaval leading to lowering exports. 
C)  a reconfiguration of central bank balance sheets. 
D)  speculative attacks on the currency or central banks purchasing excessive amounts of government bonds. 
E)  depreciation of foreign reserves.

Question 7

Which one of the following statements is the MOST accurate?

Accepted Answer

A)  Revaluation reflects an outcome of government actions and market forces acting together while appreciation reflects a deliberate government decision. 
B)  Revaluation reflects a deliberate government decision while appreciation is an outcome of government actions and market forces acting together. 
C)  Revaluation reflects a deliberate government decision while appreciation is an outcome of government actions. 
D)  Revaluation and appreciation have the same meaning and the same causes. 
E)  Appreciation reflects a deliberate government decision while revaluation is an outcome of government actions and market forces acting together. 
A)  Revaluation reflects an outcome of government actions and market forces acting together while appreciation reflects a deliberate government decision. 
B)  Revaluation reflects a deliberate government decision while appreciation is an outcome of government actions and market forces acting together. 
C)  Revaluation reflects a deliberate government decision while appreciation is an outcome of government actions. 
D)  Revaluation and appreciation have the same meaning and the same causes. 
E)  Appreciation reflects a deliberate government decision while revaluation is an outcome of government actions and market forces acting together.

Question 8

Under fixed rates, which one of the following statements is the MOST accurate?

Accepted Answer

A)  Monetary policy can affect only output. 
B)  Monetary policy can affect only employment. 
C)  Monetary policy can affect only international reserves. 
D)  Monetary policy can not affect international reserves. 
E)  Monetary policy can only affect money supply. 
A)  Monetary policy can affect only output. 
B)  Monetary policy can affect only employment. 
C)  Monetary policy can affect only international reserves. 
D)  Monetary policy can not affect international reserves. 
E)  Monetary policy can only affect money supply.

Question 9

Describe the mechanism which would take place if the Bank of England decides to increase its money supply by purchasing domestic assets under the gold standard.

Accepted Answer

The increase in Britain's money supply w

Question 10

The liabilities side of a central bank's accounts consists of

Accepted Answer

A)  deposits held by private banks. 
B)  currency in circulation. 
C)  deposits held by private banks and currency in circulation. 
D)  deposits held by foreign banks, domestic assets, and currency in circulation. 
E)  foreign assets and domestic assets. 
A)  deposits held by private banks. 
B)  currency in circulation. 
C)  deposits held by private banks and currency in circulation. 
D)  deposits held by foreign banks, domestic assets, and currency in circulation. 
E)  foreign assets and domestic assets.

Question 11

Which of the following is an example of a regional currency arrangement?

Accepted Answer

A)  exchange rate union 
B)  currency cartel associations 
C)  free-trade zones 
D)  most-favored nation status 
E)  agreement on commercial trade 
A)  exchange rate union 
B)  currency cartel associations 
C)  free-trade zones 
D)  most-favored nation status 
E)  agreement on commercial trade

Question 12

Under the gold standard, if the dollar price of gold is pegged at $35 per ounce and the euro price of gold is pegged at 12 euro per ounce, what is the dollar/euro exchange rate?

Accepted Answer

The dollar/euro exchange rate

Question 13

If the central bank does not purchase foreign assets when output increases but instead holds the money stock constant, can it still keep the exchange rate fixed at   ? Please explain with the aid of a figure.

Accepted Answer

@#IMG-DLM& No, the rise in output leads to an exce

Question 14

Please discuss the difference between the terms devaluation and depreciation.

Accepted Answer

Depreciation is a rise in the exchange r

Question 15

Does the signalling effect of foreign exchange intervention support or refute the claim that assets cannot be perfect substitutes if sterilized intervention is going to have any effect? Please explain.

Accepted Answer

The signalling effect refutes the claim.

Question 16

Use a figure to illustrate the ineffectiveness of monetary policy to spur on an economy under a fixed exchange rate.

Accepted Answer

@#IMG-DLM& The initial equilibrium rests at point

Question 17

Under fixed exchange rate, in general which one of the following statements is the MOST accurate?

Accepted Answer

A)  The following condition should hold for domestic money market equilibrium: Ms/P = L(R   , Y). 
B)  The following condition should hold for domestic money market equilibrium: Md/P = L(R   , Y). 
C)  The following condition should hold for domestic money market equilibrium: Ms = L(R   , Y). 
D)  The following condition should hold for domestic money market equilibrium: P = L(R   , Y). 
E)  The following condition should hold for domestic money market equilibrium: R*Md/P = L(Y). 
A)  The following condition should hold for domestic money market equilibrium: Ms/P = L(R   , Y). 
B)  The following condition should hold for domestic money market equilibrium: Md/P = L(R   , Y). 
C)  The following condition should hold for domestic money market equilibrium: Ms = L(R   , Y). 
D)  The following condition should hold for domestic money market equilibrium: P = L(R   , Y). 
E)  The following condition should hold for domestic money market equilibrium: R*Md/P = L(Y).

Question 18

From the figure below, please provide an explanation for the large decline in the growth rate of international reserves held by developing countries in the 2008-2009 period.

Accepted Answer

The growth of global capital markets has

Question 19

Central banks often intervene in currency markets. This activity is called

Accepted Answer

A)  managed floating. 
B)  fixing exchange rates. 
C)  currency warfare. 
D)  super-pegging. 
E)  flexible floating. 
A)  managed floating. 
B)  fixing exchange rates. 
C)  currency warfare. 
D)  super-pegging. 
E)  flexible floating.

Question 20

Capital flight

Accepted Answer

A)  increases reserves. 
B)  is never associated with the expectation of devaluation. 
C)  may undo expected devaluation. 
D)  reduces losses during a devaluation scare. 
E)  decreases reserves and may induce devaluation. 
A)  increases reserves. 
B)  is never associated with the expectation of devaluation. 
C)  may undo expected devaluation. 
D)  reduces losses during a devaluation scare. 
E)  decreases reserves and may induce devaluation.

Exam 18: Fixed Exchange Rates and Foreign Exchange Intervention

Imperfect asset substitutability assumes

Balance of payments crises under fixed exchange rates occur because of

Briefly discuss the main advantage of the bimetallic standard over the gold standard.

Use a figure to explain the potential effectiveness of fiscal policy to spur on the economy under a fixed exchange rate.

List the drawbacks of the gold standard.

Currency crises may result from

Which one of the following statements is the MOST accurate?

Under fixed rates, which one of the following statements is the MOST accurate?

Describe the mechanism which would take place if the Bank of England decides to increase its money supply by purchasing domestic assets under the gold standard.

The liabilities side of a central bank's accounts consists of

Which of the following is an example of a regional currency arrangement?

Under the gold standard, if the dollar price of gold is pegged at $35 per ounce and the euro price of gold is pegged at 12 euro per ounce, what is the dollar/euro exchange rate?

If the central bank does not purchase foreign assets when output increases but instead holds the money stock constant, can it still keep the exchange rate fixed at ? Please explain with the aid of a figure.

Please discuss the difference between the terms devaluation and depreciation.

Does the signalling effect of foreign exchange intervention support or refute the claim that assets cannot be perfect substitutes if sterilized intervention is going to have any effect? Please explain.

Use a figure to illustrate the ineffectiveness of monetary policy to spur on an economy under a fixed exchange rate.

Under fixed exchange rate, in general which one of the following statements is the MOST accurate?

From the figure below, please provide an explanation for the large decline in the growth rate of international reserves held by developing countries in the 2008-2009 period.

Central banks often intervene in currency markets. This activity is called

Capital flight

Introduction

World Trade: an Overview

Labor Productivity and Comparative Advantage: the Ricardian Model

Specific Factors and Income Distribution

Resources and Trade: the Heckscher-Ohlin Model

The Standard Trade Model

External Economies of Scale and the International Location of Production

Firms in the Global Economy: Export Decisions, Outsourcing, and Multinational Enterprises

The Instruments of Trade Policy

The Political Economy of Trade Policy

Trade Policy in Developing Countries

Controversies in Trade Policy

National Income Accounting and the Balance of Payments

Exchange Rates and the Foreign Exchange Market: an Asset Approach

Money, Interest Rates, and Exchange Rates

Price Levels and the Exchange Rate in the Long Run

Output and the Exchange Rate in the Short Run

International Monetary Systems: an Historical Overview

Financial Globalization: Opportunity and Crisis

Optimum Currency Areas and the Euro

Developing Countries: Growth, Crisis, and Reform

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