Bus 187 Ch 10

Which country has the greatest amount of foreign-exchange reserves in the world?

China

The Bretton Woods Agreement established a system of fixed exchange rates under which each

IMF member country set a par value

Which of the following most accurately describes the economic situation in El Salvador?

It is facing significant competition from neighboring countries that are not tied to the dollar.

Ray, a marketer at a global firm, monitors the exchange rate of countries in which the firm sells its products.

Ray is most likely concerned about changes in product demand

What institution links together the central banks of the world and acts as a central banker's bank?

The BIS

The special drawing right is an international reserve asset created to supplement IMF members' existing reserve assets.

True

According to the text, which currency is expected to experience the most change in the upcoming years?

Yuan

The purchasing power parity theory claims that

a change in relative inflation between two countries must cause a change in exchange rates in order to keep the prices of goods in two countries fairly similar.

In a country with a currency that is not freely floating, the timing of an exchange rate change is often

a political decision.

The Fed wants to counter downward pressure on the dollar, so it will most likely

buy dollars with foreign currency.

It is easier to predict the direction of a

change than the magnitude of a change in exchange rates.

Governments use a multiple exchange rate system to

control foreign exchange convertibility.

Forecasters must predict the magnitude, direction, and timing of an

exchange rate change or movement.

Endaka, the "high yen, " caused

financial problems for Japanese exporters.

Research has shown that past exchange rates are an accurate predictor of

future exchange rates only in the very short run.

The primary result of the Jamaica Agreement was to allow

greater exchange-rate flexibility.

According to purchasing power parity theory,

if Brazilian inflation was 6 percent and inflation in Argentina was 12 percent, the Brazilian real would be expected to rise by the difference in inflation rates.

The global financial crisis has pushed China closer to

liberalizing its currency.

Dollarization is a form of

locking the value of a country's currency onto another currency.

According to purchasing power parity, if the domestic inflation rate is

lower than that in the foreign country, the domestic currency should be stronger than that of the foreign country.

A black market exists when

people pay more for hard currency than the official rate.

The primary objective of the International Monetary Fund is to

promote exchange rate stability.

What role has the IMF played in the Greek financial crisis of 2010-2011?

releasing funds for debt payments

The U.S. dollar is the currency most widely used as a

reserve asset.

What popular fast food index was used by the Economist as an illustration of the PPP theory for estimating exchange rates?

the Big Mac Index

The Fisher Effect states that

the country with the higher interest rate should have the higher inflation.

A country's central bank is responsible for

the policies affecting the value of its country's currency.

The major objective of the European Central Bank is

to set monetary policy for EU countries that adopt the euro.

According to the text, the value of the SDR is currently based on the

weighted average of four currencies.