chapter 14
37. Refer to Figure 15.1. Suppose the United States decreases investment spending in Switzerland, thus reducing the demand for francs from D0 to D2. Other things being equal, under a floating exchange-rate system, the new equilibrium exchange rate would be a. $0.40 per franc. b. $0.50 per franc. c. $0.60 per franc. d. $0.70 per franc.
a. $0.40 per franc.
22. Other things being equal, under a floating exchange-rate system, if the U.S. dollar depreciates against the Swiss franc a. American exports to Switzerland will be cheaper in francs. b. American exports to Switzerland will be more expensive in francs. c. American imports from Switzerland will be cheaper in dollars. d. None of these are correct.
a. American exports to Switzerland will be cheaper in francs.
68. Which of the following is not a potential disadvantage of freely floating exchange rates? a. They require larger amounts of international reserves than other exchange systems. b. Demand for imports and exports may be influenced by price speculation. c. There may occur large amounts of destabilizing speculation. d. Capital movements among nations may be hindered via exchange rate fluctuations.
a. They require larger amounts of international reserves than other exchange systems.
43. Under managed floating exchange rates, other things being equal, a central bank would initiate a. a contractionary monetary policy to offset a depreciation of its currency. b. a contractionary monetary policy to offset an appreciation of its currency. c. an expansionary monetary policy to offset a depreciation of its currency. d. None of these are correct.
a. a contractionary monetary policy to offset a depreciation of its currency.
12. In 1973, the reform of the international monetary system resulted in the change from a. adjustable pegged rates to managed floating rates. b. managed floating rates to adjustable pegged rates. c. crawling pegged rates to freely floating rates. d. freely floating rates to crawling pegged rates.
a. adjustable pegged rates to managed floating rates.
4. Other things being equal, under managed floating exchange rates, if the rate of inflation in the United States is less than the rate of inflation of its trading partners, the dollar will likely a. appreciate against foreign currencies. b. depreciate against foreign currencies. c. be officially revalued by the government. d. be officially devalued by the government.
a. appreciate against foreign currencies.
17. Other things being equal, under a floating exchange-rate system, if American exports increase and American imports decrease, the value of the dollar will likely a. appreciate. b. depreciate. c. be officially revalued. d. neither appreciate not depreciate.
a. appreciate.
63. Suppose Sweden's inflation rate is lower than that of its trading partner. Other things being equal, under a floating exchange-rate system Sweden would experience a/an a. appreciation in its currency. b. depreciation in its currency. c. decrease in the level of its exports. d. increase in the level of its imports.
a. appreciation in its currency.
98. For developing countries, efforts to prevent speculation and currency crises have included a. controls on capital flows. b. more freely floating exchange rates. c. greater reliance on foreign capital. d. abandoning fixed exchange-rate systems.
a. controls on capital flows.
77. Under a system of fixed exchange rates, the purpose of currency devaluation is to cause the exchange value of a currency to ______, thus counteracting a balance-of-payments ______. a. depreciate, deficit b. depreciate, surplus c. appreciate, deficit d. appreciate, surplus
a. depreciate, deficit
90. A central bank that desires a (an) ______ of its currency would likely implement a ______ monetary policy. a. depreciation, expansionary b. depreciation, neutral c. appreciation, neutral d. appreciation, expansionary
a. depreciation, expansionary
7. Which exchange-rate system does NOT require monetary reserves for official exchange rate intervention? a. floating exchange rates b. pegged exchange rates c. managed floating exchange rates d. dual exchange rates
a. floating exchange rates
30. As a policy instrument, currency devaluation may be controversial since it a. imposes hardships on the exporters of foreign countries. b. imposes hardships on exporters of the devaluing country. c. is generally followed by unemployment in the devaluing country. d. is generally followed by price deflation in the devaluing country.
a. imposes hardships on the exporters of foreign countries.
74. Other things being equal, to temporarily offset an appreciation in the dollar's exchange value, the Federal Reserve could ____ the U.S. money supply, which would promote a (an) ____ in U.S. interest rates and a ____ in investment flows to the United States. a. increase, decrease, decrease b. increase, increase, decrease c. decrease, decrease, decrease d. decrease, increase, decrease
a. increase, decrease, decrease
21. Given an initial equilibrium in the money market and foreign-exchange market, suppose the Federal Reserve decreases the money supply of the United States. Other things being equal, under a floating exchange-rate system, demand for the dollar will likely a. increase, inducing an appreciation in value relative to other currencies. b. decrease, inducing a depreciation in value relative to other currencies. c. decrease, inducing an appreciation in value relative to other currencies. d. increase, inducing a depreciation in value relative to other currencies.
a. increase, inducing an appreciation in value relative to other currencies.
42. Under managed floating exchange rates, other things being equal, the Federal Reserve could offset an appreciation of the dollar against the yen by a. increasing the money supply, which promotes falling interest rates and net investment outflows. b. increasing the money supply, which promotes rising interest rates and net investment inflows. c. decreasing the money supply, which promotes falling interest rates and net investment outflows. d. decreasing the money supply, which promotes rising interest rates and net investment inflows.
a. increasing the money supply, which promotes falling interest rates and net investment outflows.
95. Countries such as Bolivia and Costa Rica have adopted crawling pegged exchange rates. Under this system, a country a. makes small, frequent changes in the par value of its currency to moderate balance-of-payments disequilibrium. b. allows its currency to float freely in the foreign exchange market in the short run and long run. c. maintains a system of completely fixed exchange rates. d. smooths fluctuations in exchange rates over the long run, but not in the short run.
a. makes small, frequent changes in the par value of its currency to moderate balance-of-payments disequilibrium.
76. When the United States abandoned the Bretton Woods system in 1973, it adopted a system of a. managed floating exchange rates. b. freely fluctuating exchange rates. c. adjustable pegged exchange rates. d. crawling pegged exchange rates.
a. managed floating exchange rates.
15. Developing nations whose trade and financial relationships are mainly with a single partner tend to utilize a. pegged exchange rates. b. freely floating exchange rates. c. managed floating exchange rates. d. crawling pegged exchange rates.
a. pegged exchange rates.
86. With fixed exchange rates, assume that the home currency becomes undervalued relative to its par value. Other things being equal, to maintain the fixed exchange rate, the home country's central bank must a. purchase the home currency, and as a result it loses international reserves. b. purchase the home currency, and as a result it gains international reserves. c. sell the home currency, and as a result it loses international reserves. d. sell the home currency, and as a result it gains international reserves.
a. purchase the home currency, and as a result it loses international reserves.
44. To offset an appreciation of the dollar against the yen, other things being equal, the Federal Reserve would a. sell dollars on the foreign exchange market and lower domestic interest rates. b. sell dollars on the foreign exchange market and raise domestic interest rates. c. buy dollars on the foreign exchange market and lower domestic interest rates. d. buy dollars on the foreign exchange market and raise domestic interest rates.
a. sell dollars on the foreign exchange market and lower domestic interest rates.
38. Refer to Figure 15.1. Suppose the demand for francs increases from D0 to D1. Other things being equal, under a fixed exchange-rate system, the U.S. exchange-stabilization fund could maintain a fixed exchange rate of $0.50 per franc by a. selling francs for dollars on the foreign-exchange market. b. selling dollars for francs on the foreign-exchange market. c. decreasing U.S. exports, thus decreasing the supply of francs. d. stimulating U.S. imports, thus increasing the demand for francs.
a. selling francs for dollars on the foreign-exchange market.
55. Refer to Figure 15.2. Suppose the demand for pounds increases from D0 to D1. Other things being equal, under a fixed exchange-rate system the U.S. exchange stabilization fund could maintain a fixed exchange rate of $0.80 per pound by a. selling pounds for dollars on the foreign exchange market. b. selling dollars for pounds on the foreign exchange market. c. decreasing U.S. exports, thus decreasing the supply of pounds. d. stimulating U.S. imports, thus increasing the demand for pounds.
a. selling pounds for dollars on the foreign exchange market.
27. Other things being equal, the central bank of the United Kingdom could prevent the pound from appreciating by a. selling pounds on the foreign-exchange market. b. buying pounds on the foreign-exchange market. c. reducing its inflation rate relative to its trading partners. d. promoting domestic investment and technological development.
a. selling pounds on the foreign-exchange market.
48. An objective of the dollarization of the Mexican economy would be to a. shield its economy from hyperinflation, currency depreciation, and capital flight. b. allow the Federal Reserve to be its lender of last resort. c. ensure that its monetary policy is independent of the Federal Reserve. d. permit it to benefit from tariffs and subsidies imposed by the U.S. government.
a. shield its economy from hyperinflation, currency depreciation, and capital flight.
24. In recent years, the United States has accused China of manipulating the yuan so as to gain an unfair competitive advantage in global trade. The United States has argued that the central bank of China has a. sold yuan and bought dollars, thus depreciating the yuan against the dollar. b. sold yuan and bought dollars, thus appreciating the yuan against the dollar. c. bought yuan and sold dollars, thus depreciating the yuan against the dollar. d. bought yuan and sold dollars, thus appreciating the yuan against the dollar.
a. sold yuan and bought dollars, thus depreciating the yuan against the dollar.
39. Refer to Table 15.1. Under a system of floating exchange rates, the equilibrium exchange rate equals a. $0.15 per franc. b. $0.20 per franc. c. $0.25 per franc. d. $0.30 per franc.
b. $0.20 per franc.
Figure 15.1 shows the market for the Swiss franc. In the figure, the initial demand for marks and supply of marks are depicted by D0 and S0, respectively. Figure 15.1. The Market for the Swiss Franc 35. Refer to Figure 15.1. With a system of floating exchange rates, the equilibrium exchange rate is a. $0.40 per franc. b. $0.50 per franc. c. $0.60 per franc. d. $0.70 per franc.
b. $0.50 per franc.
71. Under a floating exchange-rate system, other things being equal, if there occurs a fall in the dollar price of the Swiss franc a. American exports to Switzerland will be cheaper in francs. b. American exports to Switzerland will be more expensive in francs. c. American imports from Switzerland will be more expensive in dollars. d. None of the above.
b. American exports to Switzerland will be more expensive in francs.
56. In 1944, financial ministers throughout the world met in New Hampshire to set up an adjustable pegged exchange- rate system. This system became known as the a. General Agreement on Tariffs and Trade. b. Bretton Woods system. c. Bank for International Settlements. d. World Bank.
b. Bretton Woods system.
5. Other things being equal, under adjustable pegged exchange rates, if the rate of inflation in the United States exceeds the rate of inflation of its trading partners a. U.S. exports tend to rise and imports tend to fall. b. U.S. imports tend to rise and exports tend to fall. c. U.S. foreign exchange reserves tend to rise. d. U.S. foreign exchange reserves remain constant.
b. U.S. imports tend to rise and exports tend to fall.
65. Under a floating exchange-rate system, other things being equal, which of the following best leads to a depreciation in the value of the Canadian dollar? a. a decrease in the Canadian money supply b. a decrease in the Canadian interest rate c. an increase in the national income of Canada's trade partners d. rising inflation rates in Canada's trade partners
b. a decrease in the Canadian interest rate
46. If Mexico dollarizes its economy, it essentially a. allows the Federal Reserve to be its lender of last resort. b. accepts the monetary policy of the Federal Reserve. c. ensures that its business cycle is identical to that of the U.S. d. abandons its ability to run governmentally balanced budgets.
b. accepts the monetary policy of the Federal Reserve.
45. To help insulate their economies from inflation, currency depreciation, and capital flight, developing countries have implemented a. regional trading blocs. b. currency boards. c. central banks. d. regional fiscal policies.
b. currency boards.
59. The result of devaluations of the dollar in the early 1970s was to a. increase the price of U.S. exports. b. decrease the price of U.S. exports. c. decrease the price of U.S. imports. d. increase the U.S. balance of payments surplus.
b. decrease the price of U.S. exports.
20. Given an initial equilibrium in the money market and foreign-exchange market, suppose the Federal Reserve increases the money supply of the United States. Other things being equal, under a floating exchange-rate system, the dollar will likely a. appreciate in value relative to other currencies. b. depreciate in value relative to other currencies. c. be officially devalued by the government. d. neither appreciate nor depreciate.
b. depreciate in value relative to other currencies.
18. Other things being equal, under a floating exchange-rate system, if American exports decrease and American imports increase, the value of the dollar will likely a. appreciate. b. depreciate. c. be officially revalued. d. be officially devalued.
b. depreciate.
28. Other things being equal, a surplus nation can reduce its payments imbalance by a. applying tariffs and trade restrictions on imports. b. devaluing its national currency. c. increasing its labor productivity. d. setting higher interest rates than its trading partners.
b. devaluing its national currency.
26. In a managed floating exchange-rate system, temporary stabilization of the dollar's exchange value requires the Federal Reserve to adopt a (an) ____ monetary policy when the dollar is appreciating and a (an) ____ policy when the dollar is depreciating. a. expansionary, expansionary b. expansionary, contractionary c. contractionary, expansionary d. contractionary, contractionary
b. expansionary, contractionary
13. The Bretton Woods Agreement of 1944 established a monetary system based on a. gold and managed floating exchange rates. b. gold and adjustable pegged exchange rates. c. special drawing rights and managed floating exchange rates. d. special drawing rights and adjustable pegged exchange rates.
b. gold and adjustable pegged exchange rates.
99. In recent years, the United States has accused China of manipulating the yuan so as to gain an unfair competitive advantage in global trade. The United States has argued that China has a. maintained an overvalued yuan that makes U.S. exports to China more expensive. b. maintained an undervalued yuan that makes U.S. exports to China more expensive. c. helped the yuan's exchange value to appreciate, thus making U.S. exports to China more expensive. d. revalued the yuan by adjusting its part value upward, thus making U.S. exports to China more expensive.
b. maintained an undervalued yuan that makes U.S. exports to China more expensive.
94. For the United States, its current exchange-rate system is generally considered to be a a. freely floating exchange-rate system. b. managed floating exchange-rate system. c. crawling pegged exchange-rate system. d. currency board system.
b. managed floating exchange-rate system.
10. Under the historic adjustable pegged exchange-rate system, member countries were permitted to correct persistent and sizable payment deficits (i.e., fundamental disequilibrium) by a. officially revaluing their currencies. b. officially devaluing their currencies. c. allowing their currencies to depreciate in the free market. d. allowing their currencies to appreciate in the free market.
b. officially devaluing their currencies.
40. Refer to Table 15.1. If monetary authorities fix the exchange rate at $0.10 per franc, there would be a a. shortage of 200 francs. b. shortage of 400 francs. c. surplus of 200 francs. d. surplus of 400 francs.
b. shortage of 400 francs.
14. Rather than constructing their own currency baskets, some nations peg the value of their currencies to a currency basket defined by the International Monetary Fund. Which of the following is an example of this type of basket? a. IMF tranche b. special drawing right c. primary reserve asset d. swap facility
b. special drawing right
69. Proponents of freely floating exchange rates maintain that a. central banks can easily modify fluctuations in exchange rates. b. the system allows policy makers freedom in pursuing domestic economic goals. c. inelastic demand schedules prevent large fluctuations in exchange rates. d. inelastic supply schedules prevent large fluctuations in exchange rates.
b. the system allows policy makers freedom in pursuing domestic economic goals.
36. Refer to Figure 15.1. Suppose that the United States increases its imports from Switzerland, resulting in a rise in the demand for francs from D0 to D1. Other things being equal, under a floating exchange-rate system, the new equilibrium exchange rate would be a. $0.40 per franc. b. $0.50 per franc. c. $0.60 per franc. d. $0.70 per franc.
c. $0.60 per franc.
Figure 15.2 Market for the British Pound 52. Refer to Figure 15.2. Demand and supply of British pounds is initially D0 and S0. With a system of floating exchange rates, the equilibrium exchange rate is a. $0.40 per pound. b. $0.60 per pound. c. $0.80 per pound. d. $1 per pound.
c. $0.80 per pound.
23. Under the Bretton Woods system of 1946-1973, member countries could re-peg their currencies up to _____, without permission of the International Monetary Fund. a. 2 percent b. 5 percent c. 10 percent d. 25 percent
c. 10 percent
84. Hong Kong essentially has fixed the exchange value of its currency to the a. euro. b. British pound. c. U.S. dollar. d. Canadian dollar.
c. U.S. dollar.
72. Under a system of floating exchange rates, other things being equal, a U.S. trade deficit with Japan will cause a. a flow of gold from the United States to Japan. b. the U.S. government to ration yen to U.S. importers. c. an increase in the dollar price of yen. d. a decrease in the dollar price of yen.
c. an increase in the dollar price of yen.
88. Under a system of fixed exchange rates, other things being equal, if the par value of the fixed exchange rate is overvalued, then its central bank's effort to prevent the currency from ______ will lead to a (an) ______. a. depreciating, increase in international reserves b. depreciating, decrease in international reserves c. appreciating, increase in international reserves d. appreciating, decrease in international reserves
c. appreciating, increase in international reserves
67. A market-determined decrease in the dollar price of the pound is associated with a. revaluation of the dollar. b. devaluation of the dollar. c. appreciation of the dollar. d. depreciation of the dollar.
c. appreciation of the dollar.
89. A central bank that desires a (an) ______ of its currency would likely implement a ______ monetary policy. a. depreciation, contractionary b. depreciation, neutral c. appreciation, contractionary d. appreciation, expansionary
c. appreciation, contractionary
70. A potential disadvantage of freely floating exchange rates is that there would a. exist excessive amounts of hedging in the foreign exchange markets. b. be a lack of incentive to initiate exchange arbitrage. c. be excessive amounts of destabilizing speculation. d. exist a devaluation bias in the exchange markets.
c. be excessive amounts of destabilizing speculation.
50. The crawling peg is a(n) a. fixed exchange-rate system. b. floating exchange-rate system. c. compromise between fixed and floating exchange rates. d. exchange-rate system used by nations experiencing no inflation.
c. compromise between fixed and floating exchange rates.
92. Proponents of a fixed exchange-rate system maintain that it is superior to a floating exchange-rate system because a. the balance of payments adjusts continuously to exchange-rate movements. b. governments can establish independent monetary and fiscal policies. c. disorderly exchange-rate movements can disrupt trade and investment patterns. d. floating exchange rates operate under simplified institutional arrangements.
c. disorderly exchange-rate movements can disrupt trade and investment patterns.
73. A potential limitation of freely floating exchange rates is that a. countries require a larger amount of international reserves than otherwise. b. countries are unable to initiate economic policies to combat unemployment. c. exchange rates may experience wide and frequent fluctuations. d. demand tends to be highly sensitive to price movements.
c. exchange rates may experience wide and frequent fluctuations.
29. A main purpose of exchange stabilization funds is to a. permit a country to overvalue its currency in the exchange markets. b. permit a country to undervalue its currency in the exchange markets. c. increase the supply of foreign currency when imports increase and exceed exports. d. decrease the supply of foreign currency when imports increase and exceed exports.
c. increase the supply of foreign currency when imports increase and exceed exports.
19. Other things equal, under a floating exchange-rate system, an increase in U.S. imports of Japanese goods will cause a demand for Japanese yen to a. increase, inducing a depreciation in the yen. b. decrease, inducing a depreciation in the yen. c. increase, inducing an appreciation in the yen. d. decrease, inducing an appreciation in the yen.
c. increase, inducing an appreciation in the yen.
9. With a/an _____, market forces of supply and demand determine currency values. a. adjustable pegged exchange-rate system b. dual exchange-rate system c. jointly floating exchange-rate system d. freely floating exchange-rate system
c. jointly floating exchange-rate system
11. Which exchange-rate system involves a "leaning against the wind" strategy in which short-term fluctuations in exchange rates are reduced without adhering to any particular exchange rate over the long run? a. pegged or fixed exchange rates b. adjustable pegged exchange rates c. managed floating exchange rates d. freely floating exchange rates
c. managed floating exchange rates
91. Under a system of managed floating exchange rates, central banks intervene in the foreign-exchange market to a. moderate long run movements in exchange rates. b. reinforce long run movements in exchange rates. c. moderate short run fluctuations in exchange rates. d. reinforced short run fluctuations in exchange rates.
c. moderate short run fluctuations in exchange rates.
93. Proponents of a freely floating exchange-rate system maintain that it is superior to a fixed exchange-rate system because it a. keeps inflation under control. b. provides a simple and clear exchange rate target. c. provides continuous adjustment in the balance of payments. d. helps prevent disorderly exchange rate movements that can disrupt trade.
c. provides continuous adjustment in the balance of payments.
33. To defend a pegged exchange rate that overvalues its currency, a country could a. discourage commodity exports. b. encourage commodity imports. c. purchase its own currency in international markets. d. sell its own currency in international markets.
c. purchase its own currency in international markets.
87. With fixed exchange rates, assume that the home currency becomes undervalued—that is, above its par value when expressed as the home currency price of the foreign currency. Other things being equal, to maintain the fixed exchange rate, the home country's central bank must a. sell the home currency and purchase foreign currencies. b. sell the home currency and sell foreign currencies. c. purchase the home currency and sell foreign currencies. d. purchase the home currency and purchase foreign currencies.
c. purchase the home currency and sell foreign currencies.
60. According to the Bretton Woods system of 1944-1973, the United States was designated as the a. par value country. b. floating exchange rate country. c. reserve currency country. d. liquidity deficit country.
c. reserve currency country.
62. Suppose Japan runs a trade deficit. Other things being equal, if the Japanese yen appreciates against other currencies in the exchange markets, this will a. have no effect on the Japanese balance of trade. b. tend to improve the Japanese balance of trade because Japanese imports will become more expensive. c. tend to worsen the Japanese balance of trade because Japanese exports will become cheaper. d. None of these is correct.
c. tend to worsen the Japanese balance of trade because Japanese exports will become cheaper.
81. Countries tend to be less served by a fixed exchange-rate system when a. they are small, open economies. b. their inflation differentials are modest. c. they are highly exposed to international capital movements. d. their wages are quite flexible to changing market conditions.
c. they are highly exposed to international capital movements.
32. Suppose that Japan maintains a pegged exchange rate that overvalues the yen. Other things being equal, this would likely result in a. Japanese exports becoming cheaper in world markets. b. imports becoming expensive in the Japanese market. c. unemployment for Japanese workers. d. full employment for Japanese workers.
c. unemployment for Japanese workers.
53. Refer to Figure 15.2. Suppose that the United States increases its imports from England. Other things being equal, under a floating exchange-rate system the new equilibrium exchange rate would be a. $0.40 per pound. b. $0.60 per pound. c. $0.80 per pound. d. $1 per pound.
d. $1 per pound.
54. Refer to Figure 15.2. Suppose the United States decreases financial investment in England. Other things being equal, under a floating exchange-rate system the new equilibrium exchange rate would be a. $0.40 per pound. b. $0.60 per pound. c. $0.80 per pound. d. $1 per pound.
d. $1 per pound.
51. Exchange-rate controls a. discourage currency speculation. b. often result in evasion. c. are widely used by the developing nations. d. All of these are correct.
d. All of these are correct.
61. Under the Bretton Woods system of 1944-1973, a.member countries set the par value of their currencies in terms of gold. b.market exchange rates were almost fixed. c.currency devaluations or revaluations could be used to adjust the par value of a currency when it became overvalued or undervalued. d. All of these are correct.
d. All of these are correct.
79. In recent years, members of the International Monetary Fund (IMF) have adopted exchange-rate systems including a. currency board arrangements. b. fixed exchange rates. c. crawling pegged exchange rates. d. All of these are correct.
d. All of these are correct.
80. In recent years, members of the International Monetary Fund have adopted exchange-rate systems, including a. independently floating exchange rates. b. managed floating exchange rates. c. crawling pegged exchange rates. d. All of these are correct.
d. All of these are correct.
82. Members of the International Monetary Fund agree that a. their exchange-rate systems should not be manipulated to gain unfair competitive advantages over other members. b. their exchange-rate systems should not be manipulated to prevent effective balance-of-payments adjustments. c. members countries can act to counter short-term disorderly conditions in foreign-exchange markets. d. All of these are correct.
d. All of these are correct.
83. The "impossible trinity" explains the relationship between a. free movements of international capital. b. independent monetary policies of countries. c. fixed exchange-rate systems of countries. d. All of these are correct.
d. All of these are correct.
96. Sources of currency crisis for emerging countries have included all of the following, except a. weak banks and financial systems. b. governmental budget deficits financed by inflation. c. governments prone to being overthrown by force. d. All of these are correct.
d. All of these are correct.
97. For developing countries, currency boards and dollarization are intended to a. convince speculators that the exchange rate is unchangeable. b. promote confidence in the soundness of the nation's money supply. c. arrest any tendencies in an economy toward inflation. d. All of these are correct.
d. All of these are correct.
49. In order to stabilize a currency, a currency board needs to a. use an expansionary monetary policy to offset currency depreciation. b. use an expansionary monetary policy to offset currency appreciation. c. use a contractionary policy to offset currency appreciation. d. None of these are correct.
d. None of these are correct.
16. Developing nations with more than one major trading partner tend to peg the value of their currencies to a. gold. b. silver. c. a single currency. d. a basket of currencies.
d. a basket of currencies.
34. Given a two-country world, suppose Japan devalues the yen by 20 percent and South Korea devalues the won by 15 percent. Other things being equal, this results in a. an appreciation in the value of both currencies. b. a depreciation in the value of both currencies. c. an appreciation in the value of the yen against the won. d. a depreciation in the value of the yen against the won.
d. a depreciation in the value of the yen against the won.
57. The Bretton Woods system of 1944-1973 was essentially a system of a. freely fluctuating exchange rates. b. crawling pegged exchange rates. c. managed floating exchange rates. d. adjustable pegged exchange rates.
d. adjustable pegged exchange rates.
31. Given a two-country world, assume Canada and Sweden devalue their currencies by 20 percent. Other things being equal, this would result in a. an appreciation in the Canadian currency. b. an appreciation in the Swedish currency. c. an appreciation in both currencies. d. an appreciation in neither currency.
d. an appreciation in neither currency.
64. Assume that interest rates in London increase relative to those in Switzerland. Other things being equal, under a floating exchange-rate system one would expect the pound (relative to the Swiss franc) to a. depreciate due to the increased demand for pounds. b. depreciate due to the increased demand for Swiss francs. c. appreciate due to the increased demand for Swiss francs. d. appreciate due to the increased demand for pounds.
d. appreciate due to the increased demand for pounds.
78. Under a system of fixed exchange rates, the purpose of currency revaluation is to cause the exchange value of a currency to ______, thus counteracting a balance-of-payments ______. a. depreciate, deficit b. depreciate, surplus c. appreciate, deficit d. appreciate, surplus
d. appreciate, surplus
25. In recent years, the United States has accused China of manipulating the yuan so as to gain an unfair competitive advantage in global trade. Thus, proposals have been made that the United States should offset China's currency manipulation by a. selling yuan and buying dollars, thus depreciating the yuan against the dollar. b. selling and buying dollars, thus appreciating the yuan against the dollar. c. buying yuan and selling dollars, thus depreciating the yuan against the dollar. d. buying yuan and selling dollars, thus appreciating the yuan against the dollar.
d. buying yuan and selling dollars, thus appreciating the yuan against the dollar.
3. Which exchange-rate mechanism calls for frequent redefining of the par value by small amounts to remove a payment's disequilibrium? a. dual exchange rates b. adjustable pegged exchange rates c. managed floating exchange rates d. crawling pegged exchange rates
d. crawling pegged exchange rates
75. Other things being equal, to temporarily offset a depreciation in the dollar's exchange value, the Federal Reserve could ____ the U.S. money supply, which would promote a (an) ____ in U.S. interest rates and a (an) ____ in investment flows to the United States. a. increase, decrease, decrease b. increase, increase, increase c. decrease, decrease, increase d. decrease, increase, increase
d. decrease, increase, increase
66. Other things being equal, a market-determined increase in the dollar price of the pound is associated with a. revaluation of the dollar. b. devaluation of the dollar. c. appreciation of the dollar. d. depreciation of the dollar.
d. depreciation of the dollar.
8. Suppose that Bolivia uses a fixed exchange-rate system. If it chooses to also allow free capital flows, which of the following policies will it NOT be able to adopt? a. dollarization b. a currency board c. independent fiscal policy d. free capital flows
d. free capital flows
1. Of the 189 members of the International Monetary Fund in 2018, the most frequently used exchange-rate arrangement is a. freely fluctuating exchange rates. b. adjustable pegged exchange rates. c. managed floating exchange rates. d. pegged or fixed exchange rates.
d. pegged or fixed exchange rates.
2. Which exchange-rate mechanism is intended to insulate the balance of payments from short-term capital movements while providing exchange rate stability for commercial transactions? a. dual exchange rates b. managed floating exchange rates c. adjustable pegged exchange rates d. crawling pegged exchange rates
d. pegged or fixed exchange rates.
58. The Bretton Woods system of 1944-1973 was based upon a. the international silver standard. b. the international gold standard. c. freely fluctuating exchange rates. d. relatively stable exchange rates.
d. relatively stable exchange rates.
47. If Mexico fully dollarizes its economy, it agrees to a. print pesos only to finance deficits of its national government. b. use the U.S. dollar alongside its peso to finance transactions. c. have the U.S. Treasury be in charge of its tax collections. d. replace pesos with U.S. dollars in its economy.
d. replace pesos with U.S. dollars in its economy.
85. With fixed exchange rates, assume that the home currency becomes overvalued relative to its par value. Other things being equal, to maintain the fixed exchange rate the home country's central bank must a. purchase the home currency, and as a result it loses international reserves. b. purchase the home currency, and as a result it gains international reserves. c. sell the home currency, and as a result it loses international reserves. d. sell the home currency, and as a result it gains international reserves.
d. sell the home currency, and as a result it gains international reserves.
41. Refer to Table 15.1. If monetary authorities fix the exchange rate at $0.30 per franc, there will be a a. shortage of 200 francs. b. shortage of 400 francs. c. surplus of 200 francs. d. surplus of 400 francs.
d. surplus of 400 francs.
6. Under a crawling-peg exchange-rate system, which does NOT explain why a country would have a balance-of- payments deficit? a. very high rates of inflation occur domestically b. foreigners discriminate against domestic products c. technological advance is superior abroad d. the domestic currency is undervalued relative to other currencies
d. the domestic currency is undervalued relative to other currencies
100. Which of the following is an example of currency manipulation that would likely move Japan's trade balance to a trade surplus? a. when Japan buys yen and sells dollars b. when Japan sells U.S. treasuries c. when Japan buys yen and sells U.S. treasuries d. when Japan buys U.S. treasuries and sells yen
d. when Japan buys U.S. treasuries and sells yen
