Deck 19: International Monetary Regimes

Question 1

The problem for a central bank of running out of international reserves arises when it tries to prevent a depreciation of its currency.

Answer 1

True

Question 2

The advantage of a dirty float is that a country is not required to keep foreign reserves.

Answer 2

False

Question 3

Capital mobility was restricted under the Bretton Woods System.

Answer 3

True

Question 4

The United States was on a gold standard throughout its history until the Great Depression.

Question 5

A purchase of international reserves using domestic currency causes that currency to appreciate.

Question 6

The weakening of a currency under a fixed exchange rate regime is called a devaluation.

Question 7

The system of exchange rates operating in the developed world since 1972 is called the Bretton Woods system.

Question 8

Under a specie standard, a country does not need a central bank.

Question 9

England chose to opt out of the European Monetary Union to keep control of its monetary policy.

Question 10

Under Europe's exchange rate mechanism the reserve currency was the German mark.

Question 11

An advantage of a fixed exchange rate regime is that the central bank does not have to keep foreign reserves.

Question 12

Because of China's fixed exchange rate, they have acquired a large reserve of foreign assets.

Question 13

Thailand is an example of a country that ran out of reserves defending a fixed exchange rate.

Question 14

A purchase of international reserves by a central bank could be sterilized by a sale of bonds of the same value.

Question 15

A disadvantage of a managed float is that a country may lose control of domestic monetary policy at times.

Question 16

A specie standard has less stable exchange rates than the Bretton Woods system did.

Question 17

Under a dirty float, a country allows exchange rates to float between two boundaries.

Question 18

A gold standard automatically implements pro-cyclical monetary policy, .

Question 19

A disadvantage of the free float is that foreigners are unable to buy domestic corporate bonds.

Question 20

The ECB cannot simultaneously raise employment in Italy while fighting inflation in Ireland. This problem arises because exchange rates are fixed between countries using the euro.

Question 21

Which of the following regimes has/had the most stable exchange rates?

A) gold standard
B) Bretton-Woods
C) free float
D) dirty float

Question 22

When a currency is undervalued, the central bank must appreciate its domestic currency by

A) exchanging it for international reserves.
B) raising interest rates.
C) asking the IMF for a loan.
D) none of the above.

Question 23

A government using a currency board backs its own currency with a foreign currency.

Question 24

Which of the following is not part of the trilemma of international monetary regimes?

A) free trade
B) free capital flows
C) effective monetary policy
D) fixed exchange rate

Question 25

The MB decreases when central banks sell international reserves.

Question 26

The BWS system came to an end because the United States continued to issue currency without increasing its gold reserve.

Question 27

Which of the following regimes allows for effective domestic monetary policy?

A) gold standard
B) free float
C) fixed exchange rate
D) none of the above

Question 28

Speculators often hasten the process where a country must abandon a currency peg.

Question 29

The Bretton Woods system was an example of

A) a specie standard.
B) a managed fixed exchange rate regime.
C) dollarization.
D) managed float.

Question 30

A free float is characterized by

A) exchange rate volatility.
B) international capital mobility.
C) both a and b.
D) none of the above.

Question 31

The two major types of fixed exchange regimes were the Bretton Woods and dirty float.

Question 32

A major advantage of a specie standard as an exchange rate regime is

A) discretionary monetary policy is effective.
B) the currency is guaranteed to appreciate.
C) exchange rates are stable.
D) none of the above.

Question 33

A country that adopts a policy of fixing an interest rate must also have a free float exchange rate regime.

Question 34

China has adopted a fixed exchange rate to make their purchases of commodities such as oil less expensive.

Question 35

Which of the following regimes requires restrictions on capital mobility?

A) gold standard
B) Bretton-Woods
C) free float
D) none of the above

Question 36

A major advantage of a free floating exchange rate regime is

A) discretionary monetary policy is effective.
B) foreign purchases of domestic industries is restricted.
C) the future value of a currency does not depend on policy decisions.
D) none of the above.

Question 37

A sterilized purchase of foreign reserves by a central bank will cause its currency to depreciate.

Question 38

A problem with hard pegs and fixed exchange rates is that the exchange rate cannot adjust to changing economics conditions.

Question 39

Under the gold standard, if a country's currency depreciated sufficiently below the fixed conversion rate for gold, then

A) gold would flow out of the country.
B) gold would flow into the country.
C) the central bank would have to buy gold.
D) the central bank would have to sell gold.

Question 40

Some developing countries adopted a managed float instead of a free float because

A) a managed float does not require that they hold foreign reserves.
B) exchange rates are less volatile under a managed float.
C) there are restrictions on capital mobility under a free float.
D) none of the above.

Question 41

In 2008, Poland was forced to devalue its currency against the Euro. Which of the following groups was most damaged?

A) Polish producers of export goods
B) German consumers of Polish imports
C) Polish homeowners with euro-denominated mortgages
D) German homeowners with zloty-denominated mortgages

Question 42

Dollarization is a type of what exchange rate regime?

A) dirty standard
B) free float
C) fixed exchange rate
D) none of the above

Question 43

A disadvantage for China of keeping its currency pegged at a relatively weak level is

A) the price of their imports is high.
B) they must hold low yielding foreign bonds.
C) foreign domestic investment is limited.
D) all of the above.

Question 44

The major advantage of fixed exchange rates is that _____.

A) is allows for free capital mobility
B) it ensures exchange rate stability for importers and exporters
C) central banks can exercise monetary policy discretion
D) it increases the foreign exchange reserves with the central bank

Question 45

What are the four major types of exchange rate regimes?

Question 46

During the first century of the United States' existence, its predominant exchange rate regime was a

A) specie standard.
B) managed exchange rate.
C) free float.
D) none of the above.

Question 47

An unsterilized sale of international reserves by a central bank is meant to make its currency

A) appreciate.
B) depreciate.
C) neither appreciate nor depreciate.
D) cannot be determined.

Question 48

The Fed buys $20,000 in foreign reserves. This intervention is sterilized if they also

A) sell $20,000 in U.S. bonds.
B) buy $20,000 in U.S. bonds.
C) decrease the MB by 20,000.
D) do nothing.

Question 49

A country that uses inflation targeting must have what type of exchange rate regime?

A) free float
B) managed float
C) dollarization
D) currency board

Question 50

The textbook recommends what type of exchange rate regime for developing countries?

A) gold standard
B) free float
C) currency board
D) none of the above

Question 51

A sterilized purchase of international reserves by a central bank is meant to make its currency

A) appreciate.
B) depreciate.
C) neither appreciate nor depreciate.
D) cannot be determined.

Question 52

The difference between dollarization and a currency board is that

A) dollarization is a type of fixed exchange rate regime while a currency board is not.
B) the government earns seigniorage under a currency board.
C) a currency board uses specie to set a minimum value for the exchange rate.
D) none of the above.

Question 53

Which of the following is true for countries following the gold standard exchange rate system?

A) Discretionary fiscal policy in these countries is hindered.
B) These countries are relatively less susceptible to domestic shocks.
C) The value of the exchange rate is relatively stable.
D) These countries are not prone to deflation or inflation.

Question 54

An exchange rate regime where a country slowly adjusts the maximum and minimum values for the exchange rate is called a

A) crawling peg.
B) free float.
C) currency board.
D) none of the above.

Question 55

Which of the following countries was forced to devalue their currency and break their dirty float commitment?

A) Great Britain
B) Thailand
C) China
D) none of the above

Question 56

Under a dirty float, a country must sell international reserves when its exchange rate (in terms of a foreign currency) reaches its

A) maximum.
B) minimum.
C) both of the above.
D) neither of the above.

Question 57

Which of the following is a type of fixed exchange rate regime?

A) gold standard
B) currency board
C) dollarization
D) all of the above

Question 58

The United States currently (2012) has what type of exchange rate regime?

A) free float
B) managed float
C) dollarization
D) currency board

Question 59

A country that commits to a maximum and minimum allowable exchange rate at a given time uses a

A) dirty float.
B) managed fixed exchange rate.
C) specie standard.
D) all of the above.

Question 60

Seigniorage is

A) profits from the issuance of money.
B) depreciation of a domestic currency.
C) appreciation of the domestic currency.
D) none of the above.

Question 61

Would Norway be better off fixing their currency to the euro or the Japanese yen? Why?

Question 62

What part of the trilemma does a free floating exchange rate regime fail to accomplish?

Question 63

Argentina's currency board ran into trouble when the country went into a recession. Explain the problem in terms of monetary policy.

Question 64

How does IMF lending create a moral hazard problem?

Question 65

What caused countries to move away from the Bretton Woods system?

Question 66

What part of the trilemma does a specie standard exchange rate regime fail to accomplish?

Question 67

Show the changes to the balance sheet for a central bank that makes an unsterilized purchase of $300 million in international reserves. What would be the impact on the currency of the currency?

Question 68

What is seigniorage?

Question 69

Show the changes to the balance sheet for a central bank that makes a sterilized sale of $400 million in international reserves. What would be the impact on the currency of the currency?

Question 70

What is the major advantage and disadvantage of China's policy of fixing their exchange rate at a weak level against the dollar?

Question 71

Geologists discover that under the glaciers, Antarctica is made of gold. What would be the impact on the price level for a country under the gold standard? under a free float?

Question 72

Does the balance sheet below show a sterilized or unsterilized intervention in the foreign exchange market? Explain briefly.

Question 73

Explain what is meant by the "trilemma of international monetary regimes."