Question 1

Unlike floating exchange rates,fixed exchange rates are not characterized by par values and central bank intervention in the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 2

Under a floating exchange-rate system,if the U.S.dollar depreciates against the Swiss franc:

Accepted Answer

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

Question 3

Since 1974,the major industrial countries have operated under a system of fixed exchange rates based on the gold standard.

Accepted Answer

A) True 
 B)False

Question 4

Which exchange-rate mechanism is intended to insulate the balance of payments from short-term capital movements while providing exchange rate stability for commercial transactions?

Accepted Answer

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

Question 5

Under the historic adjustable pegged exchange-rate system,member countries were permitted to correct persistent and sizable payment deficits (i.e.,fundamental disequilibrium)by:

Accepted Answer

A)  Officially revaluing their currencies 
B)  Officially devaluing their currencies 
C)  Allowing their currencies to depreciate in the free market 
D)  Allowing their currencies to appreciate in the free market

Question 6

An objective of the dollarization of the Mexican economy would be to:

Accepted Answer

A)  Shield its economy from hyperinflation, currency depreciation, and capital flight 
B)  Allow the Federal Reserve to be its lender of last resort 
C)  Ensure that its monetary policy is independent of the Federal Reserve 
D)  Permit it to benefit from tariffs and subsidies imposed by the U.S. government

Question 7

Under a floating exchange rate system,an increase in U.S.imports of Japanese goods will cause the demand schedule for Japanese yen to:

Accepted Answer

A)  Increase, inducing a depreciation in the yen 
B)  Decrease, inducing a depreciation in the yen 
C)  Increase, inducing an appreciation in the yen 
D)  Decrease, inducing an appreciation in the yen

Question 8

A market-determined decrease in the dollar price of the pound is associated with:

Accepted Answer

A)  Revaluation of the dollar 
B)  Devaluation of the dollar 
C)  Appreciation of the dollar 
D)  Depreciation of the dollar

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

Under managed floating exchange rates,a central bank would initiate:

Accepted Answer

A)  Contractionary monetary policy to offset a depreciation of its currency 
B)  Contractionary monetary policy to offset an appreciation of its currency 
C)  Expansionary monetary policy to offset a depreciation of its currency 
D)  None of the above

Question 11

To temporarily offset a depreciation in the dollar's exchange value,the Federal Reserve could ____ the U.S.money supply which would promote a (an)____ in U.S.interest rates and a (an)____ in investment flows to the United States.

Accepted Answer

A)  Increase, decrease, decrease 
B)  Increase, increase, increase 
C)  Decrease, decrease, increase 
D)  Decrease, increase, increase

Question 12

The U.S.dollar is generally regarded as the major "key currency" of the international monetary system.

Accepted Answer

A) True 
 B)False

Question 13

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 14

When pursued over the long run,a policy of increasing the domestic money supply to offset an appreciation of the home country's currency results in inflation and a decrease in home-country competitiveness in key industries.

Accepted Answer

A) True 
 B)False

Question 15

It is universally recognized that Europe fulfills the conditions of an optimum currency area.

Accepted Answer

A) True 
 B)False

Question 16

A potential disadvantage of freely floating exchange rates is that there would:

Accepted Answer

A)  Exist excessive amounts of hedging in the foreign exchange markets 
B)  Be a lack of incentive to initiate exchange arbitrage 
C)  Be excessive amounts of destabilizing speculation 
D)  Exist a devaluation bias in the exchange markets

Question 17

Under a floating exchange-rate system,if American exports decrease and American imports rise,the value of the dollar will:

Accepted Answer

A)  Appreciate 
B)  Depreciate 
C)  Be officially revalued 
D)  Be officially devalued

Question 18

Proponents of freely floating exchange rates maintain that:

Accepted Answer

A)  Central banks can easily modify fluctuations in exchange rates 
B)  The system allows policy makers freedom in pursuing domestic economic goals 
C)  Inelastic demand schedules prevent large fluctuations in exchange rates 
D)  Inelastic supply schedules prevent large fluctuations in exchange rates

Question 19

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 20

Under a system of floating exchange rates,a U.S.trade deficit with Japan will cause:

Accepted Answer

A)  A flow of gold from the United States to Japan 
B)  The U.S. government to ration yen to U.S. importers 
C)  An increase in the dollar price of yen 
D)  A decrease in the dollar price of yen

Exam 15: Exchange-rate Systems and Currency Crises

Unlike floating exchange rates,fixed exchange rates are not characterized by par values and central bank intervention in the foreign exchange market.

Under a floating exchange-rate system,if the U.S.dollar depreciates against the Swiss franc:

Since 1974,the major industrial countries have operated under a system of fixed exchange rates based on the gold standard.

Which exchange-rate mechanism is intended to insulate the balance of payments from short-term capital movements while providing exchange rate stability for commercial transactions?

Under the historic adjustable pegged exchange-rate system,member countries were permitted to correct persistent and sizable payment deficits (i.e.,fundamental disequilibrium) by:

An objective of the dollarization of the Mexican economy would be to:

Under a floating exchange rate system,an increase in U.S.imports of Japanese goods will cause the demand schedule for Japanese yen to:

A market-determined decrease in the dollar price of the pound is associated with:

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?

Under managed floating exchange rates,a central bank would initiate:

To temporarily offset a depreciation in the dollar's exchange value,the Federal Reserve could the U.S.money supply which would promote a (an) in U.S.interest rates and a (an) in investment flows to the United States.

The U.S.dollar is generally regarded as the major "key currency" of the international monetary system.

If Mexico dollarizes its economy,it essentially

When pursued over the long run,a policy of increasing the domestic money supply to offset an appreciation of the home country's currency results in inflation and a decrease in home-country competitiveness in key industries.

It is universally recognized that Europe fulfills the conditions of an optimum currency area.

A potential disadvantage of freely floating exchange rates is that there would:

Under a floating exchange-rate system,if American exports decrease and American imports rise,the value of the dollar will:

Proponents of freely floating exchange rates maintain that:

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

Under a system of floating exchange rates,a U.S.trade deficit with Japan will cause:

Exam 15: Exchange-rate Systems and Currency Crises

Unlike floating exchange rates,fixed exchange rates are not characterized by par values and central bank intervention in the foreign exchange market.

Under a floating exchange-rate system,if the U.S.dollar depreciates against the Swiss franc:

Since 1974,the major industrial countries have operated under a system of fixed exchange rates based on the gold standard.

Which exchange-rate mechanism is intended to insulate the balance of payments from short-term capital movements while providing exchange rate stability for commercial transactions?

Under the historic adjustable pegged exchange-rate system,member countries were permitted to correct persistent and sizable payment deficits (i.e.,fundamental disequilibrium) by:

An objective of the dollarization of the Mexican economy would be to:

Under a floating exchange rate system,an increase in U.S.imports of Japanese goods will cause the demand schedule for Japanese yen to:

A market-determined decrease in the dollar price of the pound is associated with:

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?

Under managed floating exchange rates,a central bank would initiate:

To temporarily offset a depreciation in the dollar's exchange value,the Federal Reserve could ____ the U.S.money supply which would promote a (an) ____ in U.S.interest rates and a (an) ____ in investment flows to the United States.

The U.S.dollar is generally regarded as the major "key currency" of the international monetary system.

If Mexico dollarizes its economy,it essentially

When pursued over the long run,a policy of increasing the domestic money supply to offset an appreciation of the home country's currency results in inflation and a decrease in home-country competitiveness in key industries.

It is universally recognized that Europe fulfills the conditions of an optimum currency area.

A potential disadvantage of freely floating exchange rates is that there would:

Under a floating exchange-rate system,if American exports decrease and American imports rise,the value of the dollar will:

Proponents of freely floating exchange rates maintain that:

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

Under a system of floating exchange rates,a U.S.trade deficit with Japan will cause:

To temporarily offset a depreciation in the dollar's exchange value,the Federal Reserve could the U.S.money supply which would promote a (an) in U.S.interest rates and a (an) in investment flows to the United States.