Chapter6

A weak dollar is normally expected to cause:

LOW unemployment and HIGH inflation in the US

17. A strong dollar places _______ pressure on inflation, which in turn places _______ pressure on the dollar.

downward,upward

A primary result of the Smithsonian Agreement was:

establishing that exchange rates of most major countries were allowed to fluctuate 2.25% above or below their initially set values.

A primary result of the Bretton Woods Agreement was:

establishing that exchange rates of most major currencies were to be allowed to fluctuate 1% above or below their initially set values.

the exchange rate mechanism refers to the method of linking _________ currencies to each other within boundaries

european

which of the following is an example of direct intervention in forien exhange markets?

exchanging dollars for foriegn currency

If the fed desires to weaken the dollar without affecting the dollar money supply, it should:

exhange dollars for foreign currenciees, and sell some of its existing treasury security holding for dollars.

an advantage of a fixed exchnage rate system is that governments are not required to constantly intervene in the foreign exchange market to maintain exchange rates within specified boundaries

false

the asian crisis is generally believed to have started in japan

false

the european countries conforming to the euro are completely insulated from movements in the euro's value with respect to other countries

false

under the sytsem known as the "dirty" float, official boundaries for the exchange rate exist, but they are wider than they are under a fixed exchange rate system:

false

the fed may use a stimulative monetary policy with least concern about causing inflation if the dollars value is expected to:

strengthen

27. 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?

weaken the dollar

during the period 1944-1971, the us used a ____ system

fixed

A STRONG dollar is normally expected to cause:

HIGH unemployment and LOW inflation in the US

which of the following are examples of currency controls?

all of these

which of the following is true regarding the euro?

all of these are true

which of the following is true about the southeast asian currency crisis?

asian exhchange rates were converted from floating to fixed to resolve the crisis

28. 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 inflation. Which of the following is an appropriate action given this scenario?

buy dollars with foriegn currency

29. To strengthen the dollar using sterilized intervention, the Fed would _______ dollars and simultaneously _______ Treasury securities.

buy;sell

as foreign exchange activity has grown:

central bank intervention has become less efective

Under a fixed exchange rate system:

central bank intervention in the foriegn exchange market is often necessary

which of the following countries was probably the least affected by the asian crisis?

china

5. Consider two countries that trade with each other, called X and Y. According to the text, inflation in Country X will have a greater impact on inflation in Country Y under the _______ system. Now, consider two other countries that trade with each other, called A and B. Unemployment in Country A will have a greater impact on unemployment in Country B under the _______ system.

fixed rate; fixed rate

which of the following have no adopted the euro?

iceland

13. Assume countries A, B, and C produce goods that are substi¬tutes of each other and that these countries engage in trade with each other. Assume that country A's currency floats against country B's currency, and that country C's currency is pegged to B's. If A's currency depreciates against B, then A's exports to C should _______, and A's imports from C should _______.

increase;decrease

24. 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.

increase;increase

when using indirect intervention, a central bank is likely to focus on:

interest rateschina

The value of the canadian dollar, Japanese yen, and australian dollar with respect to the US dollar are a part of:

managed float system

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

monetary

12. The currency of country X is pegged to the currency of country Y. Assume that country 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.

more;less

Assume a central bank exchanges its currency for other foriegn currencies in the foreign exchange market, but does not adjust for the resuting change in the money supply. this is an example of:

nonsterilized intervention

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

not necessairly be similiar to risk-free rates in other countries

To force the value of the pound to APPRECIATE against the dollar, the federal reserve should:

sell DOLLARS for pounds in the foreign exchange market and the ECB should sell DOLLARS for pounds in the foreign exchange market

To force the value of the British pound to DEPRECIATE against the dollar, the federal reserve should:

sell pounds for dollars in the foreign exchange market and the bank of england should sell pounds for dollars in the foreign exhange market

the term "target zone arrangement" refers to a:

situation where countries adjust their national economic policies to maintain exchange rates within some predetermined limits

which of the following is not true regarding thailand?

thailand was one of the slowest growing countries of the 1985-1994 period

the euro has not been adopted by:

the uk

from a financial management perspective, which of the following is true regarding the introduction of the euro?

transaction costs decline for MNC's that conduct transactions within europe

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 europ

true

a possible reason why china was less afected by the asian cris is that is government exerts more influence on private enterprise than the governments of other asian countries

true

currency devaluation can boost a country's exports, but currency revaluation can increase foriegn competition

true

the establishment of the euro allows for more consistent economic conditions across countries but eleiminates the power of any individual euopean country to solve local economic problems with its own unique monetary policy

true

under a fixed exchange system, US inflation would have a greater impact on inflation in other countries than it would under a freely floating exchange rate sytem

true

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

true

19. A weaker dollar places _______ pressure on U.S. inflation, which in turn places _______ pressure on U.S. interest rates, which places _______ pressure on U.S. bond prices.

upward;upward;downward

9. 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.

weakening; decrease

The interest rate of a country with a currency board:

will move in tandem with the interest rate of the currency to which it is tied