Question 1

If the goal were to decrease the value of a country's currency - to fight an appreciation of the domestic currency in exchange for foreign currency - the central bank would:

Accepted Answer

A)  buy its own currency in exchange for foreign currency. 
B)  follow a restrictive monetary policy. 
C)  drive real rates of interest up. 
D)  sell its own currency in exchange for foreign currency.

Question 2

The smaller and less liquid markets and currency markets frequently demonstrate behaviors that follow the principles outlined by the different schools of thought on exchange rate determination (parity conditions, balance of payments approach, and asset approach) relatively well in the medium to long term.

Accepted Answer

A) True 
 B)False

Question 3

The International Monetary Fund, as one of its basic principles (Article IV), encourages members to pursue "currency manipulation" to gain competitive advantages over other members as opposed to engaging in military action to achieve the same advantage.

Accepted Answer

A) True 
 B)False

Question 4

________ is the active buying and selling of the domestic currency against foreign currencies.

Accepted Answer

A)  Indirect Intervention 
B)  Direct Intervention 
C)  Foreign Direct Investment 
D)  Federal Funding

Question 5

The roots of the Asian currency crisis extended from a fundamental change in the economics of the region, the transition of many Asian nations from being net importers to net exporters.

Accepted Answer

A) True 
 B)False

Question 6

Indirect intervention for domestic currency valuation typically uses tools of monetary policy as opposed to using tools of fiscal policy.

Accepted Answer

A) True 
 B)False

Question 7

In 1991, Argentina adopted a currency board (the Argentine peso had been pegged to the U.S. dollar at a one-to-one rate of exchange) to fight hyperinflation. This currency board lasted for a decade until the economic crisis of 2001. Discuss: 1) the pros and cons of a currency board policy, 2) the crisis condition of the Argentina's economy by 2001, and 3) the lessons to be drawn from the Argentina story.

Accepted Answer

The answer of In 1991, Argentina adopted a currency board...

Question 8

Which of the following is NOT a technique used by governments or central banks to impact domestic currency valuation?

Accepted Answer

A)  Indirect Intervention 
B)  Direct Intervention 
C)  Capital Controls 
D)  All of the above are techniques used to control currency valuation.

Question 9

Prior to July 2, 1997, the Thai government:

Accepted Answer

A)  allowed the Thai Bhat to float against major currencies. 
B)  fixed the Bhat's value against the Korean won only. 
C)  fixed the Bhat's value against major currencies especially the U.S. dollar. 
D)  none of the above

Question 10

Which of the following did NOT contribute to the Russian currency crisis of 1998?

Accepted Answer

A)  an accelerated flight of capital 
B)  generally deteriorating economic conditions 
C)  a surprisingly healthy government surplus that was neither funding internal investment nor external debt service 
D)  all of the above

Question 11

________ is defined as the spread of a crisis in one country to its neighboring countries and other countries with similar characteristics.

Accepted Answer

A)  Speculation 
B)  Contagion 
C)  Capital market liquidity 
D)  Political science

Question 12

The balance of payments approach of exchange rate theory is largely dismissed by the academic community today, while the practitioner public still rely on different variations of the theory for their decision making.

Accepted Answer

A) True 
 B)False

Question 13

________ is the alteration of economic or financial fundamentals that are thought to be drivers of capital to flow in and out of specific currencies.

Accepted Answer

A)  Indirect Intervention 
B)  Direct Intervention 
C)  Foreign Direct Investment 
D)  Capital Controls

Question 14

The authors claim that random events, institutional frictions, and technical factors may cause currency values to deviate significantly from their long-term fundamental path.

Accepted Answer

A) True 
 B)False

Question 15

Technical analysis of exchange rates developed in part due to the forecasting inadequacies of fundamental exchange rate theories.

Accepted Answer

A) True 
 B)False

Question 16

The ________ approach to the determination of spot exchange rates hypothesizes that the most important factors are the relative real interest rate and a country's outlook for economic growth and profitability.

Accepted Answer

A)  balance of payments 
B)  parity conditions 
C)  managed float 
D)  asset market

Question 17

Which of the following was NOT an international currency crisis in the 1990s and early 2000s?

Accepted Answer

A)  the Asian Crisis 
B)  the Canadian Crisis 
C)  the Argentine Crisis 
D)  All of the above were currency crises in the 1990s and 2000s.

Question 18

Which of the following is NOT a motivation for a government or central bank to manipulate domestic currency valuation?

Accepted Answer

A)  fight inflation 
B)  slow too rapid economic growth 
C)  spur too slow economic growth 
D)  All of the above are motivations for the government or central bank to manipulate currency values.

Question 19

The authors claim that theoretical and empirical studies appear to show that fundamentals do apply to the long-term for foreign exchange.

Accepted Answer

A) True 
 B)False

Question 20

The most visible roots of the crisis were in the excesses of capital inflows into Thailand extending credit to a variety of domestic investments and enterprises beyond what the Thai economy could support and creating an investment "bubble."

Accepted Answer

A) True 
 B)False

Exam 9: Foreign Exchange Rate Determination and Intervention

If the goal were to decrease the value of a country's currency - to fight an appreciation of the domestic currency in exchange for foreign currency - the central bank would:

The International Monetary Fund, as one of its basic principles (Article IV), encourages members to pursue "currency manipulation" to gain competitive advantages over other members as opposed to engaging in military action to achieve the same advantage.

________ is the active buying and selling of the domestic currency against foreign currencies.

The roots of the Asian currency crisis extended from a fundamental change in the economics of the region, the transition of many Asian nations from being net importers to net exporters.

Indirect intervention for domestic currency valuation typically uses tools of monetary policy as opposed to using tools of fiscal policy.

Which of the following is NOT a technique used by governments or central banks to impact domestic currency valuation?

Prior to July 2, 1997, the Thai government:

Which of the following did NOT contribute to the Russian currency crisis of 1998?

________ is defined as the spread of a crisis in one country to its neighboring countries and other countries with similar characteristics.

The balance of payments approach of exchange rate theory is largely dismissed by the academic community today, while the practitioner public still rely on different variations of the theory for their decision making.

________ is the alteration of economic or financial fundamentals that are thought to be drivers of capital to flow in and out of specific currencies.

The authors claim that random events, institutional frictions, and technical factors may cause currency values to deviate significantly from their long-term fundamental path.

Technical analysis of exchange rates developed in part due to the forecasting inadequacies of fundamental exchange rate theories.

The ________ approach to the determination of spot exchange rates hypothesizes that the most important factors are the relative real interest rate and a country's outlook for economic growth and profitability.

Which of the following was NOT an international currency crisis in the 1990s and early 2000s?

Which of the following is NOT a motivation for a government or central bank to manipulate domestic currency valuation?

The authors claim that theoretical and empirical studies appear to show that fundamentals do apply to the long-term for foreign exchange.

The most visible roots of the crisis were in the excesses of capital inflows into Thailand extending credit to a variety of domestic investments and enterprises beyond what the Thai economy could support and creating an investment "bubble."