Question 1

In 1944,financial ministers throughout the world met in New Hampshire to set up an adjustable pegged exchange rate system.This system became known as the

Accepted Answer

A)  General Agreement on Tariffs and Trade 
B)  Bretton Woods System 
C)  Bank for International Settlements 
D)  World Bank

Question 2

With a system of fixed exchange rates,a country that exhausts its international reserves in an attempt to keep its currency from _____ will have to ______ its currency

Accepted Answer

A)  depreciating; devalue 
B)  depreciating; revalue 
C)  appreciating; devalue 
D)  appreciating; revalue

Question 3

If Mexico dollarizes its economy,it essentially

Accepted Answer

A)  Allows the Federal Reserve to be its lender of last resort 
B)  Accepts the monetary policy of the Federal Reserve 
C)  Ensures that its business cycle was identical to that of the U.S. 
D)  Abandons its ability to run governmental balanced budgets

Question 4

Many developing nations with low inflation rates have pegged their currencies to the U.S.dollar as a way of allowing modest increases in domestic inflation rates.

Accepted Answer

A) True 
 B)False

Question 5

Under a pegged exchange-rate system,which does not explain why a country would have a balance-of-payments deficit?

Accepted Answer

A)  Very high rates of inflation occur domestically 
B)  Foreigners discriminate against domestic products 
C)  Technological advance is superior abroad 
D)  The domestic currency is undervalued relative to other currencies

Question 6

A currency board is a type of a floating exchange rate system in which the commitment to the floating exchange rate is very strong.

Accepted Answer

A) True 
 B)False

Question 7

Large industrial nations with diversified economies and small trade sectors have generally pegged their currencies to one of the world's key currencies.

Accepted Answer

A) True 
 B)False

Question 8

With fixed exchange rates,assume that the home currency becomes overvalued.To maintain the fixed exchange rate,the home country's central bank must

Accepted Answer

A)  purchase the currency,and as a result it loses international reserves 
B)  purchase the currency,and as a result it gains international reserves 
C)  sell the currency,and as a result it loses international reserves 
D)  sell the currency,and as a result it gains international reserves

Question 9

Rather than constructing their own currency baskets,many nations peg the value of their currencies to a currency basket defined by the International Monetary Fund.Which of the following illustrates this basket?

Accepted Answer

A)  IMF tranche 
B)  Special Drawing Rights 
C)  Primary reserve asset 
D)  Swap facility

Question 10

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

Question 11

The exchange rate system established by the Bretton Woods Agreement of 1944-1973 was an adjustable pegged system.

Accepted Answer

A) True 
 B)False

Question 12

Hong Kong essentially has fixed the exchange value of its currency to the

Accepted Answer

A)  euro 
B)  British pound 
C)  U.S.dollar 
D)  Canadian dollar

Question 13

Given an initial equilibrium in the money market and foreign exchange market,suppose the Federal Reserve increases the money supply of the United States.Under a floating exchange-rate system,the dollar would:

Accepted Answer

A)  Appreciate in value relative to other currencies 
B)  Depreciate in value relative to other currencies 
C)  Be officially devalued by the government 
D)  Be officially revalued by the government

Question 14

Which exchange-rate system does not require monetary reserves for official exchange-rate intervention?

Accepted Answer

A)  Floating exchange rates 
B)  Pegged exchange rates 
C)  Managed floating exchange rates 
D)  Dual exchange rates

Question 15

When the United States abandoned the Bretton Woods System in 1973,it adopted a system of

Accepted Answer

A)  managed floating exchange rates 
B)  freely fluctuating exchange rates 
C)  adjustable pegged exchange rates 
D)  crawling pegged exchange rates

Question 16

Which exchange-rate system involves a "leaning against the wind" strategy in which short-term fluctuations in exchange rates are reduced without adhering to any particular exchange rate over the long run?

Accepted Answer

A)  Pegged or fixed exchange rates 
B)  Adjustable pegged exchange rates 
C)  Managed floating exchange rates 
D)  Freely floating exchange rates

Question 17

If Argentine adopts the U.S.dollar as its official currency,it seeks to eliminate the possibility of a speculative attack against its currency.

Accepted Answer

A) True 
 B)False

Question 18

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

Question 19

In recent years,the United States has accused China of manipulating the yuan so as to gain an unfair competitive advantage in global trade.Thus,proposals have been made that the United States should offset China's currency manipulation by

Accepted Answer

A)  selling yuan and buying dollars,thus depreciating the yuan against the dollar 
B)  selling and buying dollars,thus appreciating the yuan against the dollar 
C)  buying yuan and selling dollars,thus depreciating the yuan against the dollar 
D)  buying yuan and selling dollars,thus appreciating the yuan against the dollar

Question 20

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

Exam 15: Exchange Rate Systems and Currency Crises

In 1944,financial ministers throughout the world met in New Hampshire to set up an adjustable pegged exchange rate system.This system became known as the

With a system of fixed exchange rates,a country that exhausts its international reserves in an attempt to keep its currency from _ will have to __ its currency

If Mexico dollarizes its economy,it essentially

Many developing nations with low inflation rates have pegged their currencies to the U.S.dollar as a way of allowing modest increases in domestic inflation rates.

Under a pegged exchange-rate system,which does not explain why a country would have a balance-of-payments deficit?

A currency board is a type of a floating exchange rate system in which the commitment to the floating exchange rate is very strong.

Large industrial nations with diversified economies and small trade sectors have generally pegged their currencies to one of the world's key currencies.

With fixed exchange rates,assume that the home currency becomes overvalued.To maintain the fixed exchange rate,the home country's central bank must

Rather than constructing their own currency baskets,many nations peg the value of their currencies to a currency basket defined by the International Monetary Fund.Which of the following illustrates this basket?

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

The exchange rate system established by the Bretton Woods Agreement of 1944-1973 was an adjustable pegged system.

Hong Kong essentially has fixed the exchange value of its currency to the

Given an initial equilibrium in the money market and foreign exchange market,suppose the Federal Reserve increases the money supply of the United States.Under a floating exchange-rate system,the dollar would:

Which exchange-rate system does not require monetary reserves for official exchange-rate intervention?

When the United States abandoned the Bretton Woods System in 1973,it adopted a system of

Which exchange-rate system involves a "leaning against the wind" strategy in which short-term fluctuations in exchange rates are reduced without adhering to any particular exchange rate over the long run?

If Argentine adopts the U.S.dollar as its official currency,it seeks to eliminate the possibility of a speculative attack against its currency.

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

In recent years,the United States has accused China of manipulating the yuan so as to gain an unfair competitive advantage in global trade.Thus,proposals have been made that the United States should offset China's currency manipulation by

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.