ECO 316 Week 4 Chapter 22 The International Financial System and Monetary Policy

This document of ECO 316 Week 4 Chapter 22 The International Financial System and Monetary Policy contains:

22.1 Multiple Choice Questions

1) In the early 2000s, the Argentine government's fiscal policy guaranteed which of the following may take place?

2) In the early 2000s, what problem did the Argentine central bank face?

3) Foreign central banks

4) International financial transactions are most likely to affect the U.S. money supply when

5) Deliberate actions by a central bank to influence the exchange rate are known as

6) Foreign-exchange market interventions will always

7) International reserves are

8) If the Fed wants to increase the value of the dollar, it will

9) If the Fed wants to reduce the value of the dollar, it will

10) When a central bank buys foreign assets,

11) When a central bank buys foreign assets,

12) If the Fed buys $2 billion of short-term securities issued by the Bank of Japan and pays for them by writing a check for $2 billion,

13) If the Fed buys $2 billion of short-term securities issued by the Bank of Japan and pays for them by writing a check for $2 billion,

14) When the Fed sells foreign assets to buy domestic assets,

15) If the Fed sells foreign assets, the monetary base will

16) A sale of foreign assets by a central bank has the same effect on the monetary base as

17) An unsterilized foreign-exchange intervention occurs

18) When the Fed allows the monetary base to respond to the purchase or sale of domestic currency in the foreign exchange market, the process is called

19) If the Fed sterilizes the purchase of foreign assets,

20) If the Fed sells $1 billion of short-term securities issued by the Bank of Japan and at the same time purchases $1 billion of short-term securities issued by the U.S. Treasury,

21) If the Fed sterilizes the purchase of foreign assets,

22) If the Fed conducts an open market sale to increase domestic interest rates, what is likely to occur in the foreign exchange market?

23) The main reason central banks engage in foreign-exchange interventions is to

24) Why may a central bank intervene in the foreign exchange market when its currency is depreciating?

25) Why may a central bank intervene in the foreign exchange market when its currency is appreciating?

26) A central bank might attempt to offset an increase in the cost of foreign goods by

27) A central bank may be reluctant to see its currency appreciate because

28) The equilibrium exchange rate

29) If a central bank wishes to raise the foreign-exchange value of its currency, it will

30) If a central bank wishes to lower the foreign-exchange value of its currency, it will

31) An unsterilized intervention in which the central bank sells foreign assets to purchase domestic currency will result in

32) Which of the following will NOT result from an unsterilized intervention in which the central bank sells foreign assets to purchase domestic currency?

33) A sterilized intervention will have its greatest effect on

34) Which of the following statements about a currency risk premium is not true?

35) If a central bank engages in an unsterilized foreign-exchange intervention with the intention of raising the foreign-exchange value of its currency,

36) If the central bank buys foreign assets,

37) If the central bank buys foreign assets,

38) A sterilized intervention will not affect the exchange rate if

39) Explicit capital controls are

40) Capital controls were imposed in 1998 by

41) Capital inflow restrictions

42) Which of the following was a result of Thailand imposing capital controls in December 2006?

43) When domestic and foreign assets are imperfect substitutes, an increase in the supply of domestic assets

44) U.S. officials carry out foreign-exchange interventions through

45) During the 1980s, the Reagan administration intervened in foreign-exchange markets

46) In 1987, the so-called Louvre Accord

47) What is the approximate daily volume of trading in the foreign-exchange market?

48) Although coordinated changes in monetary policy are likely to affect the exchange rate

49) Which of the following is true of the U.S. balance of payments?

50) The current account balance plus the financial account balance

51) The trade balance is

52) Which of the following is NOT included in the current account balance?

53) What was the approximate value of the U.S. current account balance in 2005?

54) In 2005, the financial account balance was approximately

55) If the U.S. current account balance is positive,

56) What accounted for much of policymakers' concern over U.S. current account deficits in the 1980s and 1990s?

57) When someone in a country buys an asset abroad, the transaction is recorded

58) Historically, the leading official reserve asset was

59) The official settlement balance

60) In the U.S. balance-of-payments accounts, the statistical discrepancy

61) Fixed exchange rate regimes

62) Under the gold standard, if the demand for U.S. goods increased, which of the following would happen?

63) Which of the following was NOT considered to have been a drawback of the pre-1914 gold standard?

64) The gold standard probably made the Great Depression more severe in the United States because

65) In the early 1930s

66) The Bretton Woods system lasted from

67) Under the Bretton Woods system the international reserve currency was the

68) The promise that was to hold the Bretton Woods system together was the agreement that

69) Under the Bretton Woods system, exchange rates were supposed to be adjusted

70) The Bretton Woods system was expected to be more stable than the gold standard because

71) The formal name of the World Bank is

72) The fixed exchange rates of the Bretton Woods system were maintained

73) Under the Bretton Woods system, an asymmetry in the ability of central banks to defend their exchange rates existed because

74) Which of the following statements is correct?

75) Why has the IMF come in for widespread criticism for its handling of the Asian financial crisis?

76) The speculative attack on the British pound in 1967 succeeded because

77) The speculative attack on the German mark in 1971 resulted in

78) Under the Bretton Woods system, the value of the dollar could be changed

79) On August 15, 1971, the United States

80) At the 1976 IMF conference in Jamaica,

81) Special Drawing Rights

82) Currently, the price of gold is

83) The exchange rate system followed by the United States is known as

84) Currently, the dominant reserve currency is the

85) If the U.S. dollar were to cease to be the leading international reserve currency,

86) The euro is

87) Members of the ERM

88) Under a European monetary union,

89) At the time monetary union in Europe began in 1999, which of the following countries declined to participate?

22.2 Essay Questions

1) Throughout most of the post-World War II period, the use of capital controls by governments around the world was declining. But in the late 1990s, a number of governments expressed re ed interest in capital controls. What accounts for this re ed interest?

2) Briefly describe how the Bretton Woods system worked. What advantages did it have over the gold standard? What problems did the Bretton Woods system eventually encounter?

3) In what sense does the IMF act as a lender of last resort? How might the IMF's actions during the Mexican crisis of the mid-1990s have contributed to the Asian currency crisis a few years later?

4) Suppose that Ruritania has a fixed exchange rate versus the U.S. dollar. If foreign investors become convinced that the Ruritanian currency is overvalued, what actions might they take to profit from this conviction? Would these actions make it easier or harder for Ruritania to maintain the value of its currency versus the dollar? Why?