Chapter 8 Smartbook

At the end of December 2020, roughly Blank______% of the world's reserve assets were held in U.S. dollars. 23 40 57 75

57

The _____________ can be thought of as the central bank for central bankers. Bank for International Settlements International Monetary Fund Federal Reserve Board World Bank

Bank for International Settlements

Which of the following statements are accurate regarding currency value fluctuation? (Check all that apply.) Central banks buy and sell large amounts of currency in order to affect the supply and demand of that particular currency. Central banks allow most major currencies to fluctuate freely against one another. The majority of currency value fluctuations are significantly less than 1%. As supply of a currency increases, the price of the currency increases.

Central banks buy and sell large amounts of currency in order to affect the supply and demand of that particular currency. Central banks allow most major currencies to fluctuate freely against one another.

Which of the following statements describe nonconvertible currency? (Check all that apply.) Governments require all purchases of other currencies be made through government agencies. Governments limit its use in international transactions. Nonconvertible currency is also known as hard currency. The value is often fixed at a rate higher than its free-market value

Governments require all purchases of other currencies be made through government agencies. Governments limit its use in international transactions. The value is often fixed at a rate higher than its free-market value

The ______ helps facilitate payments, currency exchanges, and cross-border movements of capital required for international transactions? International monetary system Central bank World bank Global currency exchange

International monetary system

Which of the following are examples of convertible currencies? (Check all that apply.) Japanese yen United States dollar European Union euro Argentine peso

Japanese yen United States dollar European Union euro

In which of the following currency exchange arrangements the currency fluctuates and the country's monetary authority actively intervenes on the exchange market without specifying its goals publicly? Free floating exchange rate Stabilized arrangement Crawling peg Managed float

Managed float

In which of the following currency exchange arrangements the currency fluctuates and the country's monetary authority actively intervenes on the exchange market without specifying its goals publicly? Stabilized arrangement Free floating exchange rate Crawling peg Managed float

Managed float

How does inflation affect companies? (Check all that apply.) Rising inflation rates weaken the value of currencies. High inflation rates cause the cost of goods to rise. It determines the real cost of borrowing. Rising inflation rates encourage debt. High inflation rates bring low interest rates.

Rising inflation rates weaken the value of currencies. High inflation rates cause the cost of goods to rise. It determines the real cost of borrowing. Rising inflation rates encourage debt.

Which of the following countries follow the managed floating arrangement? (Check all that apply.) South Africa Brazil Peru United Kingdom India Canada

South Africa Brazil Peru India

Which of the following has been the most used central reserve asset in the world following World War II? European Union euro Chinese yuan U.S. dollar Japanese yen

U.S. dollar

In the London foreign exchange markets, the crawling band currency exchange arrangement is referred to as __________. a bird in the hand the end of the line a snake in the tunnel an accident waiting to happen

a snake in the tunnel

Which term refers to the process of simultaneously buying and selling to make a profit with no risk? PPP inflation intervention currency arbitrage

arbitrage

The Bank for International Settlements (BIS) is an international organization of central banks that exists to __________. determine the best currency arrangement for any given country research and find ways to reduce the unstable currency movements in the market. find ways to level the playing field between wealthy and poor nations build cooperation and thus foster monetary and financial stability

build cooperation and thus foster monetary and financial stability

What are the three major accounts within the balance of payment account? trade account cash flow account official reserves account current account capital account

capital account official reserves account current account

Which arrangement allows a currency's exchange rates with a basket of currencies to fluctuate around a fixed rate within a narrow band of less than 1%? conventional fixed-peg arrangement crawling band arrangement currency board arrangement crawling peg arrangement

conventional fixed-peg arrangement

Which type of currency exchange arrangement readjusts the country's currency to maintain fluctuation margins around a central rate? currency board crawling peg stabilized crawling band

crawling band

Nicaragua's arrangement with the U.S. dollar is an example of a __________ currency exchange arrangement. managed float stabilized crawling peg crawling band

crawling peg

Which currency exchange arrangement allows a currency to be readjusted periodically at a fixed rate or in response to changes in indicators? crawling peg stabilized crawling band managed float

crawling peg

Hong Kong's government is committed to holding U.S. dollars in an amount equal to its domestic currency supply and to exchanging the two at a fixed rate. This scenario is an example of which currency exchange arrangement? free-floating exchange rates stabilized arrangement conventional fixed-peg arrangement currency board arrangement

currency board arrangement

Which currency exchange arrangement commits the country's government to holding foreign reserves of a specific currency in an amount equal to its domestic currency supply and to exchanging the two at a fixed rate? currency board arrangement stabilized arrangement crawling band managed float

currency board arrangement

The total balance of payment account is a summation of which accounts? (Check all that apply.) current liability account current asset account current account capital account

current account capital account

What does a country's balance of payments reveal? ratio of a country's imports to exports a country's financial position in the world demand for the country's currency demand for the country's products

demand for the country's currency

The balance of payment accounts are recorded in ___________-___________ bookkeeping form.

double entry

The random walk hypothesis is related to which of the following forecasting approaches? Wall Street approach technical analysis fundamental approach efficient market approach

efficient market approach

Which approach to forecasting exchange rates assumes that current prices reflect all relevant information? benefit cost approach technical analysis approach efficient market approach fundamental approach

efficient market approach

Which of the following conditions in a country contribute to a current account deficit? (Check all that apply.) inadequate savings excessive inflation low gross national product low productivity

excessive inflation inadequate savings low productivity

The adoption of the U.S. dollar in El Salvador, Panama, and Ecuador is an example of which currency exchange arrangement? exchange arrangement with no separate legal tender conventional fixed-peg arrangement currency board arrangement crawling peg

exchange arrangement with no separate legal tender

Which currency exchange arrangement is in use when a group of countries adopt a common currency, such as the euro? exchange arrangement with no separate legal tender crawling band stabilized arrangement conventional fixed-peg arrangement

exchange arrangement with no separate legal tender

Rising inflation rates discourage borrowing. True False

false

The exchange rate regime in which the currency's value is tied to the value of another currency or gold is a __________. floating exchange rate reserve exchange rate dual exchange rate fixed exchange rate

fixed exchange rate

According to the efficient market approach, the best possible predictor of future spot rates are ___________. vehicle currencies the gold standard floating exchange rates forward exchange rates

forward exchange rates

The Bretton Woods system goes by what two other names? conventional fixed-peg system gold exchange standard fixed-rate system free floating exchange system

gold exchange standard fixed-rate system

Under the ____________ ____________ , each country set a number of units of its currency equal to an ounce of gold, and the ratios of these units of gold equivalence established the exchange rate between any two currencies.

gold standard

Countries with which of the following are more likely to have current account deficits? (Check all that apply.) strong exchange rates low interest rates high price levels high gross national product high barriers to to imports

high price levels high gross national product strong exchange rates

The three types of taxes used by governments to generate revenue are withholding tax, value-added tax, and _________ tax.

income

Which type of tax is a direct tax on personal and corporate earnings? income tax value-added tax withholding tax sales tax

income tax

According to the Fisher effect, the real interest rate will be the nominal interest rate minus the expected rate of ____________. one price arbitrage inflation unemployment

inflation

When an economy is experiencing a sustained increase in prices, it is experiencing ___________. inflation deflation stagflation depression

inflation

When money demand exceeds money supply or when there is an increase in the money supply, ___________ can occur. stagflation deflation recovery inflation

inflation

If the nominal interest rate is 5% per year in China and 3% per year in the United States, then the dollar would be expected to increase against the yuan by 2% over the year to strengthen against the dollar. This scenario is an example of the ___________. international Fisher effect balance of trade law of one price balance of payment

international Fisher effect

What concept suggests that interest rate differentials for any two currencies will reflect the expected change in their exchange rates? balance of payment balance of trade law of one price international Fisher effect

international Fisher effect

What system is made up of institutions, agreements, rules, and processes that allow for the cross-border movements of capital required for international transactions? globalization system international monetary system World Bank system free trade system

international monetary system

Central banks may use __________ currency to buy up domestic currency to reduce its supply in the market. intervention virtual vehicle reciprocal

intervention

For what two reasons has gold been trusted since ancient times as a way for people to store, exchange, and measure value? its convenience its scarcity its purity its ability to earn interest

its scarcity its purity

In a floating exchange rate system, exchange rates are determined by ______. the International Monetary Fund central bank negotiations the price of gold and silver market forces of supply and demand

market forces of supply and demand

The amount of money in circulation within the United States is established by the government through a ___________ policy. currency fiscal monetary regulatory

monetary

The talks at Bretton Woods in 1944 were the basis for establishment of the international Blank______ system. trading monetary finance tax

monetary

_____________ policies control the amount of money in circulation. ______________ policies address the collecting and spending of money by the government.

monetary fiscal

The law of ____________ price states that in an efficient market, like products will have like prices.

one

The currency exchange arrangement known as the conventional fixed- _______________ arrangement allows for a fluctuation in fixed rates within 1 percent.

peg

What theory suggests that because the factors that influence price are unpredictable, the best predictor of tomorrow's price is today's price? forward forecast hypothesis the Triffin paradox random walk hypothesis present value theory

random walk hypothesis

What is the term for a currency that is quoted as dollars per unit of currency instead of units of currency per dollar? intervention currency forward currency reciprocal currency vehicle currency

reciprocal currency

reciprocal currency spot rate forward currency market forward rate options: exchange rate between two currencies for delivery within two business days currency quoted as dollars per unit of currency exchange rate between two currencies for delivery in 30, 60, 90, or 180 days contracts to purchase currencies at known rates for delivery in the future

reciprocal currency- currency quoted as dollars per unit of currency spot rate-exchange rate between two currencies for delivery within two business days forward currency market-contracts to purchase currencies at known rates for delivery in the future forward rate- exchange rate between two currencies for delivery in 30, 60, 90, or 180 days

What term is given to assets held by a nation's central bank that are used to back up liabilities? exchanges deposits reserves par values

reserves

Another name for the currency exchange arrangement known as a pegged exchange rate within a horizontal band is a __________. managed floating arrangement conventional fixed-peg arrangement stabilized arrangement crawling peg arrangement

stabilized arrangement

Exchange rate fluctuations greater than 1% are allowed in which type of currency exchange arrangement? conventional fixed-peg arrangements crawling peg arrangements managed floating arrangements stabilized arrangements

stabilized arrangements

Within a BOP account, a $2,000,000 deficit in the current account is accompanied by a $2,000,000 __________ in the capital account.

surplus

What are some reasons that explain why the effective rates of income tax are substantially lower than the statutory rates? (Check all that apply.) tax levies on passive incomes tax planning strategies creative accounting tax breaks through effective lobbying

tax planning strategies creative accounting tax breaks through effective lobbying

When interest rates vary to take into account anticipated levels of inflation, thus resulting in interest rate parity, ___________ is at work. a balance of payment the Fisher effect purchasing power parity the Triffin paradox

the Fisher effect

The balance of payments is a record of a country's transactions with ___________. intranational trading partners the rest of the world local businesses any Westernized country

the rest of the world

As the supply of a currency increases, the price of the currency decreases. True False

true

In a floating exchange rate system, currency values are based on supply and demand in the foreign exchange markets. True False

true

Which type of taxation is really just a sales tax? withholding tax interest tax value-added tax income tax

value-added tax

Which type tax is charged on a good as it moves through production to the final consumer? passive tax income tax withholding tax value-added tax

value-added tax

vehicle currency intervention currency Options: currency used for international trade or investment currency used by central banks to intervene in the foreign currency exchange markets

vehicle currency-currency used for international trade or investment intervention currency- currency used by central banks to intervene in the foreign currency exchange markets

Which of the following are types of taxes that governments use to generate revenue? (Check all that apply.) withholding tax value-added tax inflationary tax income tax

withholding tax value-added tax income tax