ch 18 set 2

A weakness of the Bretton Woods system was that the ________ had no way to force surplus countries to either revalue their exchange rates upwards or pursue more expansionary policies. IMF World Bank European Exchange Rate Mechanism (ERM) Bank of International Settlements

IMF

The Bretton Woods agreement created the ________, which was given the task of promoting the growth of world trade by setting rules for the maintenance of fixed exchange rates and by making loans to countries that were experiencing balance of payments difficulties. IMF World Bank Central Settlements Bank Bank of International Settlements

IMF

The East Asia currency crisis in 1997 started in Japan. Thailand. South Korea. the Philippines.

Thailand.

When the central bank allows the purchase or sale of domestic currency to have an effect on the monetary base, it is called Correct Answer an unsterilized foreign exchange intervention. a sterilized foreign exchange intervention. an exchange rate feedback rule. a money neutral foreign exchange intervention.

an unsterilized foreign exchange intervention.

Under a fixed exchange rate regime, a central bank that does not want to acquire international reserves to keep its currency from ________ will decide to ________ its currency. depreciating; revalue depreciating; devalue appreciating; revalue appreciating; devalue

appreciating; revalue

To keep from running out of international reserves under the Bretton Woods system, a country had to implement ________ monetary policy to ________ its currency. expansionary; strengthen expansionary; weaken contractionary; strengthen contractionary; weaken

contractionary; strengthen

Everything else held constant, if a central bank makes an unsterilized sale of foreign assets, then the domestic money supply will ________ and the domestic currency will ________. increase; appreciate increase; depreciate decrease; appreciate decrease; depreciate

decrease; appreciate

A balance of payments ________ is associated with a loss of international reserves, while a balance of payments ________ is associated with a gain. surplus; surplus surplus; deficit deficit; surplus deficit; deficit

deficit; surplus

Under the current managed float exchange rate regime, countries with balance of payments ________ frequently do not want to see their currencies ________ because it makes foreign goods more expensive for domestic consumers and can stimulate inflation. surpluses; depreciate deficits; depreciate surpluses; appreciate deficits; appreciate

deficits; depreciate

Under a fixed exchange rate regime, a country that depletes its international reserves in an attempt to keep its currency from ________ will be forced to ________ its currency. depreciating; revalue depreciating; devalue appreciating; revalue appreciating; devalue

depreciating; devalue

Between May and July 1997, concerns about the large current account deficit in Thailand and the weakness in the Thai financial system caused speculators to suspect that Thailand might be forced to devalue its currency. sell baht to prop up its value. buy dollars to prop up the baht. impose capital controls.

devalue its currency.

f a central bank does not want to see its currency ________ in value, it may pursue contractionary monetary policy to raise the domestic interest rate, thereby ________ its currency. Correct Answer fall; strengthening fall; weakening rise; strengthening rise; weakening

fall; strengthening

If the United States has a current account deficit with England of $1 million, and the Bank of England sells $1 million worth of pounds in the foreign exchange market, then England ________ $1 million of international reserves and its monetary base ________ by $1 million. gains; rises gains; falls loses; rises loses; falls

gains; rises

A balance of payments deficit is associated with a ________ of international reserves, while a balance of payments surplus is associated with a ________. loss; loss loss; gain gain; loss gain; gain

loss; gain

Under the current managed float exchange rate regime; countries with surpluses in their balance of payments frequently do not want to see their currencies appreciate because it makes their goods ________ expensive abroad and foreign goods ________ in their countries. more; cheaper more; costlier less; cheaper less; costlier

more; cheaper

Capital ________ are American purchases of foreign assets, and capital ________ are foreign purchases of American assets. inflows; outflows inflows; inflows outflows; outflows outflows; inflows

outflows; inflows

A central bank ________ of domestic currency and corresponding ________ of foreign assets in the foreign exchange market leads to an equal decline in its international reserves and the monetary base, everything else held constant. sale; purchase sale; sale purchase; sale purchase; purchase

purchase; sale

Under a fixed exchange rate regime, if a central bank must intervene to purchase the domestic currency by selling foreign assets, then, like an open market sale, this action ________ the monetary base and the money supply, causing the interest rate on domestic assets to ________. increases; rise increases; fall reduces; rise reduces; fall

reduces; rise

The difference between merchandise exports and imports is called the ________ balance. current account capital account official reserve transactions trade

trade

Under a fixed exchange rate regime, if the domestic currency is initially ________, that is, ________ par, the central bank must intervene to sell the domestic currency by purchasing foreign assets. overvalued; below overvalued; above undervalued; below undervalued; above

undervalued; above