Question 1

A strong dollar is normally expected to cause:

Accepted Answer

A)   high unemployment and high inflation in the U.S.
B)   high unemployment and low inflation in the U.S.
C)   low unemployment and low inflation in the U.S.
D)   low unemployment and high inflation in the U.S.E) B) and D)
F) A) and B)

Question 2

The interest rate of a country with a currency board:

Accepted Answer

A)   is less stable than it would be without a currency board.
B)   is typically below the interest rate of the currency to which it is tied.
C)   will move in tandem with the interest rate of the currency to which it is tied.
D)   is completely independent of the interest rate of the currency to which it is tied.E) A) and B)
F) A) and C)

Question 3

The Smithsonian Agreement was reached in September 1985 by seven major industrialized countries to systematically weaken the dollar.

Accepted Answer

A) True 
 B)False

Question 4

The currency of country X is pegged to the currency of country Y.Assume that county Y's currency depreciates against the currency of country Z.It is likely that country X will export _______ to country Z and import _______ from country Z.

Accepted Answer

A)   more;more
B)   less;less
C)   more;less
D)   less;moreE) B) and C)
F) A) and B)

Question 5

All European countries now use the euro as their currency.

Accepted Answer

A) True 
 B)False

Question 6

The Bretton Woods Agreement created a system under which exchange rates are determined by market forces without intervention by various governments.

Accepted Answer

A) True 
 B)False

Question 7

It has been argued that the exchange rate can be used as a policy tool.Assume that the U.S.government would like to reduce unemployment.Which of the following is an appropriate action given this scenario

Accepted Answer

A)   weaken the dollar.
B)   strengthen the dollar.
C)   buy dollars with foreign currency in the foreign exchange market.
D)   implement a tight monetary policy.E) B) and D)
F) B) and C)

Question 8

Currency devaluation can boost a country's exports,but currency revaluation can increase foreign competition.

Accepted Answer

A) True 
 B)False

Question 9

A primary result of the Bretton Woods Agreement was:

Accepted Answer

A)   the establishment of the European Monetary System (EMS) .
B)   establishing specific rules for when tariffs and quotas could be imposed by governments.
C)   establishing that exchange rates of most major currencies were to be allowed to fluctuate 1% above or below their initially set values.
D)   establishing that exchange rates of most major currencies were to be allowed to fluctuate freely without boundaries (although the central banks did have the right to inter vene when necessary) .E) All of the above
F) B) and C)

Question 10

During the period 1944-1971,the U.S.used a __________ system.

Accepted Answer

A)   euro exchange rate
B)   fixed
C)   dirty float
D)   flexibleE) A) and B)
F) None of the above

Question 11

The risk-free interest rates among countries that have adopted the euro should:

Accepted Answer

A)   are not necessarily similar to risk-free rates in other countries.
B)   should equal the U.S. risk-free rate.
C)   should equal the risk-free rates in other European countries.
D)   should equal the risk-free rates in Asian countries.E) B) and C)
F) C) and D)

Question 12

Under a managed float exchange rate system,the Fed may attempt to stimulate the U.S.economy by _______ the dollar.  Such an adjustment in the dollar's value should _______ the U.S.demand for products produced by major foreign countries.

Accepted Answer

A)   weakening;increase
B)   weakening;decrease
C)   strengthening;increase
D)   strengthening;decreaseE) B) and C)
F) A) and C)

Question 13

Which of the following are true about the Southeast Asian currency crisis

Accepted Answer

A)   It was preceded by several years of large capital inflows to Asia.
B)   It was preceded by a five-year recession in Asia.
C)   Asian interest rates declined during the crisis.
D)   Asian exchange rates were converted from floating to fixed to resolve the crisis.E) A) and B)
F) B) and C)

Question 14

An advantage of freely floating exchange rates is that a country with floating exchange rates is more insulated from unemployment problems in other countries.

Accepted Answer

A) True 
 B)False

Question 15

Dollarization refers to the replacement of local currency with U.S.dollars.

Accepted Answer

A) True 
 B)False

Question 16

The Fed may use a stimulative monetary policy with least concern about causing inflation if the dollar's value is expected to:

Accepted Answer

A)   remain stable.
B)   strengthen.
C)   weaken.
D)   none of the above will have an impact on inflation.E) A) and B)
F) A) and C)

Question 17

Under a fixed exchange rate system:

Accepted Answer

A)   a foreign exchange market does not exist.
B)   central bank intervention in the foreign exchange market is not necessary.
C)   central bank intervention in the foreign exchange market is often necessary.
D)   central bank intervention in the foreign exchange market is not allowed.E) None of the above
F) All of the above

Question 18

Countries that have adopted the euro must agree on a single ________ policy.

Accepted Answer

A)   monetary
B)   fiscal
C)   worker compensation
D)   foreign relationsE) All of the above
F) A) and C)

Question 19

To force the value of the British pound to depreciate against the dollar,the Federal Reserve should:

Accepted Answer

A)   sell dollars for pounds in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market.
B)   sell pounds for dollars in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market.
C)   sell pounds for dollars in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market.
D)   sell dollars for pounds in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market.E) A) and B)
F) A) and D)

Question 20

Under a pegged exchange rate system,the home currency's value is pegged to a foreign currency or to some unit of account.

Accepted Answer

A) True 
 B)False

Exam 6: Government Influence on Exchange Rates

Under a managed float exchange rate system,the Fed may attempt to stimulate the U.S.economy by _______ the dollar. Such an adjustment in the dollar's value should _______ the U.S.demand for products produced by major foreign countries.

Correct AnswerverifiedShow Answer

Countries that have adopted the euro must agree on a single ________ policy.

Correct AnswerverifiedShow Answer

Dollarization refers to the replacement of local currency with U.S.dollars.

Correct AnswerverifiedShow Answer

The Bretton Woods Agreement created a system under which exchange rates are determined by market forces without intervention by various governments.

Correct AnswerverifiedShow Answer

Under a fixed exchange rate system:

Correct AnswerverifiedShow Answer

A primary result of the Bretton Woods Agreement was:

Correct AnswerverifiedShow Answer

To force the value of the British pound to depreciate against the dollar,the Federal Reserve should:

Correct AnswerverifiedShow Answer

Currency devaluation can boost a country's exports,but currency revaluation can increase foreign competition.

Correct AnswerverifiedShow Answer

The interest rate of a country with a currency board:

Correct AnswerverifiedShow Answer

During the period 1944-1971,the U.S.used a __________ system.

Correct AnswerverifiedShow Answer

The risk-free interest rates among countries that have adopted the euro should:

Correct AnswerverifiedShow Answer

An advantage of freely floating exchange rates is that a country with floating exchange rates is more insulated from unemployment problems in other countries.

Correct AnswerverifiedShow Answer

Under a pegged exchange rate system,the home currency's value is pegged to a foreign currency or to some unit of account.

Correct AnswerverifiedShow Answer

It has been argued that the exchange rate can be used as a policy tool.Assume that the U.S.government would like to reduce unemployment.Which of the following is an appropriate action given this scenario

Correct AnswerverifiedShow Answer

All European countries now use the euro as their currency.

Correct AnswerverifiedShow Answer

The Smithsonian Agreement was reached in September 1985 by seven major industrialized countries to systematically weaken the dollar.

Correct AnswerverifiedShow Answer

The Fed may use a stimulative monetary policy with least concern about causing inflation if the dollar's value is expected to:

Correct AnswerverifiedShow Answer

A strong dollar is normally expected to cause:

Correct AnswerverifiedShow Answer

The currency of country X is pegged to the currency of country Y.Assume that county Y's currency depreciates against the currency of country Z.It is likely that country X will export _______ to country Z and import _______ from country Z.

Correct AnswerverifiedShow Answer

Which of the following are true about the Southeast Asian currency crisis

Correct AnswerverifiedShow Answer

Under a managed float exchange rate system,the Fed may attempt to stimulate the U.S.economy by _ the dollar. Such an adjustment in the dollar's value should _ the U.S.demand for products produced by major foreign countries.

Correct Answer
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The currency of country X is pegged to the currency of country Y.Assume that county Y's currency depreciates against the currency of country Z.It is likely that country X will export _ to country Z and import _ from country Z.

Correct Answer
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