Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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1.
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To force the value of the dollar to appreciate against the pound, the Federal
Reserve should:
a. | sell pounds for dollars in the foreign exchange market and the Bank of England should
sell pounds for dollars in the foreign exchange market. | b. | sell dollars for
pounds in the foreign exchange market and the Bank of England should sell pounds for dollars in the
foreign exchange market. | c. | sell dollars for pounds in the foreign exchange
market and the Bank of England should not intervene. | d. | sell dollars for pounds in the foreign exchange
market and the Bank of England should sell dollars for pounds in the foreign exchange
market. |
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2.
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A primary result of the Bretton Woods Agreement was:
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 intervene when necessary). |
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3.
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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.
a. | more; more | c. | more; less | b. | less; less | d. | less; more |
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4.
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The Bank of England may use a stimulative monetary policy with least concern
about causing inflation if the pound's value is expected to:
a. | remain stable. | b. | strengthen. | c. | weaken. | d. | none of the above will have an impact on
inflation. |
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5.
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The exchange rate mechanism (ERM) crisis in 1992 represents the __________ in
German interest rates that caused other European interest rates to __________, and resulted in less
aggregate spending.
a. | increase; increase | c. | decrease; decrease | b. | increase; decrease | d. | decrease;
increase |
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6.
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As foreign exchange activity has grown:
a. | central bank intervention has become more effective. | b. | central bank
intervention has become more frequent. | c. | central bank intervention has become less
effective. | d. | none of the above |
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7.
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Which of the following are examples of currency controls?
a. | import restrictions. | b. | prohibition of remittance of
funds. | c. | ceilings on granting credit to foreign firms. | d. | all of the
above |
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True/False
Indicate whether the
statement is true or false.
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8.
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A major advantage of the euro is the complete elimination of exchange rate risk
on transactions between participating European countries, which encourages more trade and capital
flows within Europe.
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9.
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Currency devaluation can boost a country's exports, but currency
revaluation can increase foreign competition.
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10.
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A potential advantage of exchange rate target zones is that they may stabilize
international trade patterns by reducing exchange rate volatility.
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11.
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The Bretton Woods Agreement created a system under which exchange rates are
determined by market forces without intervention by various governments.
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12.
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Nonsterilized intervention is intervention by a central bank in the foreign
exchange market without adjusting for the change in money supply.
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