Econ 3229 Final Review Part 2

If a Japanese Toyota sells for 2,500,000 yen and the nominal exchange rate is 110 yen/ $ U.S., then the dollar price of the Japanese automobile is:

$22,727.

If a U.S. dollar currently purchases 1.3 Canadian dollars and the inflation rate in Canada over the next year is 5 percent while it is 2 percent in the U.S., we should expect a U.S. dollar to purchase:

1.339 Canadian dollars.

If the interest rate on euro-denominated assets is 13 percent and it is 15 percent on peso-denominated assets, and if the euro is expected to appreciate at a 4 percent rate, for Francois the Frenchman the expected rate of return on peso-denominated assets is

11 percent

The number of voting members on the Federal Open Market Committee is:

12

With a 10 percent interest rate on dollar deposits, and an expected appreciation of 7 percent over the coming year, the expected return on dollar deposits in terms of the foreign currency is

17 percent

How many members belong to the board of directors for each of the Reserve Banks of the Fed?

Nine

The Governors of the Federal Reserve System are appointed by the:

President of the United States

The Federal Reserve District that covers the largest geographic area is serviced by the Bank located in:

San Francisco

How many members are on the Board of Governors of the Federal Reserve System?

Seven

Which of the books used at the FOMC meetings contains anecdotal information collected by the Federal Reserve Banks?

The Beigebook

A sterilized foreign exchange intervention would:

alter the asset side of a central bank's balance sheet but leave the domestic monetary base unchanged.

An increase in wealth in the U.S. will lead to the following in the foreign exchange market:

an increase in the supply of dollars

Each of the Reserve Banks has a president who is:

appointed by the bank's board of directors but approved by the board of governors.

The theory of PPP suggests that if one country's price level falls relative to another's, its currency should

appreciate

Under a fixed exchange rate regime, if a country has an overvalued exchange rate, then its central bank's attempt to keep its currency from ________ will result in a ________ of international reserves.

appreciating; loss

Assuming the free flow of capital across borders, if country A wants to fix its exchange rate with country B, then:

country A's inflation rate will have to match country B's. country A's monetary policy will not be able to be used to address domestic issues. country A's monetary policy must be conducted so the inflation rate in country A matches the inflation rate in country B. Answer: all of the answers given are correct

A decrease in the foreign interest rate causes the supply for domestic currency to ________ and the domestic currency to ________, everything else held constant.

decrease; appreciate

Suppose that the European Central Bank enacts expansionary policy. Everything else held constant, this will cause the supply for U.S. dollar to ________ and the U.S. dollar to ________.

decrease; appreciate

A decrease in the domestic interest rate causes the demand for domestic currency to ________ and the domestic currency to ________, everything else held constant.

decrease; depreciate

If the demand for reserves is expected to decrease temporarily, the manager of the trading desk at the New York Fed bank will likely conduct ________ open market operations to ________ reserves.

defensive; drain

If the FOMC revises target federal funds rate upwards, the manager of the trading desk at the Federal Reserve Bank of New York will likely conduct a ________ open market ________ of securities.

dynamic; sale

The Federal reserves Open Market Committee currently meets:

eight times a year.

Everything else held constant, in the market for reserves, when the federal funds rate is 3%, increasing the interest rate paid on excess reserves from 1% to 2%

has no effect on the federal funds rate.

Any central bank policy that influences the domestic interest rate will:

have an effect on the exchange rate.

All of the following are associated with a fixed exchange rate policy except:

higher import prices.

Suppose that the Federal Reserve conducts an open market sale. Everything else held constant, this will cause the demand for U.S. dollar to ________ and the U.S. dollar will ________.

increase; appreciate

An open-market purchase of foreign bonds to increase a central bank's international reserves:

increases the central bank's liabilities and assets.

In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves and below the discount rate, an open market purchase ________ the ________ of reserves which causes the federal funds rate to fall, everything else held constant.

increases; supply

To lower long-term interest rates, in 2010 the Fed started its new open market operation program to purchase

long-term Treasuries

The Board of Governors of the Fed performs each of the following functions, except:

making discount loans

Open market purchases raise the ________ thereby raising the ________

monetary base; money supply

In the market for reserves, when the federal funds rate is above the interest rate paid on excess reserves, the demand curve for reserves is

negatively sloped.

If Ford Mustang costs $30,000 in the US and 40,000 pounds in the UK and the current exchange rate between pound and dollar is $1.2 per pound, then according to PPP pound is ______ and should ________.

overvalued; depreciate

As a result of an open market purchase, bank reserves

rise and interest rates fall.

Discount loans intended for banks that are not financially healthy are called

secondary credit

If Europeans increase their demand for American cars, everything else constant, we should observe the following change in the U.S. dollar-euro market:

the demand curve for dollars shifts right.

When the federal funds rate equals the interest rate paid on excess reserves

the demand curve for reserves is horizontal.

To make sure the U.S. President cannot unduly influence the Board of Governors:

the terms of the governors are staggered.

If the Fed decides to maintain a fixed euro/dollar exchange rate when they sell euros:

there will be pressure on domestic interest rates to increase.

A U.S. resident who wants to purchase an automobile that comes from Japan:

will make up part of the supply of dollars on the foreign exchange market.