Question 1

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

Accepted Answer

Buying dollars with foreign currency would increase the demand for dollars, which would counter downward pressure on the dollar. Selling dollars or buying foreign stocks would both decrease the demand for dollars, and buying Treasury bills does not directly address the issue of downward pressure on the dollar.

Question 2

Thomas is planning a vacation to Country X.On a tourism Web site, he reads that the government of Country X limits the amount of money a tourist may convert into the country's currency.Country X most likely uses which of the following?

Accepted Answer

Quantity controls refer to restrictions on the amount of currency that can be exchanged or converted, which aligns with the scenario described where the government limits currency conversion for tourists.

Question 3

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

Accepted Answer

As of 2021, China has the largest foreign-exchange reserves in the world, with a total of over $3 trillion USD. This is due in part to China's large trade surplus and its policy of accumulating foreign exchange reserves as a way to stabilize its currency and protect against external shocks. Ireland, Russia, and Taiwan also hold significant foreign-exchange reserves, but not at the same level as China.

Question 4

Fully convertible currencies are also called ________.

Accepted Answer

Fully convertible currencies are also known as hard currencies because they are freely traded and have a stable value. Soft currencies, on the other hand, are not freely traded and their value can fluctuate widely. External currencies and unlimited currencies are not commonly used terms in the context of currency convertibility.

Question 5

Given the daily volume of foreign-exchange transactions, it is most accurate to say which of the following?

Accepted Answer

The daily volume of foreign-exchange transactions is incredibly high, often in the trillions of dollars, making it difficult for any one entity, including governments, to have a significant impact on the market's direction. While a government's intervention can cause a short-term shift, it cannot force the market to move in a specific direction, making choice C the most accurate. Choices A and D are not accurate as they suggest that government intervention is either impossible or the most effective solution, which is not necessarily the case. Choice B is also not entirely accurate as a currency's slide can be influenced by a government's intervention, but it does not guarantee a long-term reversal.

Question 6

Describe the exchange rate arrangements used in the EU, Hong Kong, China, and the U.S.

Accepted Answer

The answer of Describe the exchange rate arrangements used in...

Question 7

A country's central bank is responsible for ________.

Accepted Answer

A country's central bank is responsible for implementing policies that affect the value of its country's currency. This includes regulating interest rates and controlling the money supply. The other choices are not responsibilities of a central bank.

Question 8

According to the Treaty of Maastricht, a euro applicant must have a total outstanding government debt that does not exceed 60% of its GDP.

Accepted Answer

According to the Treaty of Maastricht, a euro applicant must have a total outstanding government debt that does not exceed 60% of its GDP.

Question 9

A black market exists when ________.

Accepted Answer

A black market exists when people are paying more for a good or service than the official rate set by the government or other regulating entity. This is often due to shortages or restrictions in supply, resulting in a market where goods or services are sold illegally. A and C do not relate to the existence of a black market, and while a recession may contribute to the conditions that increase the likelihood of a black market, it is not sufficient on its own to create one.

Question 10

Hard currencies are usually ________.

Accepted Answer

Hard currencies are highly liquid, meaning they are easily exchanged for other currencies and can be readily used in international trade and finance. They are usually issued by stable economies and governments, which means they are less prone to sudden fluctuations in value.

Question 11

If inflation in the United States is relatively higher than inflation in Japan, and the Japanese government wants to keep the exchange rate fixed between the yen and the dollar, it should most likely ________.

Accepted Answer

To keep the exchange rate fixed despite higher inflation in the United States compared to Japan, the Japanese government would need to increase the supply of yen in the market. This action would devalue the yen relative to the dollar, offsetting the inflation differential and helping to maintain the fixed exchange rate.

Question 12

In a short essay, compare the roles of the Federal Reserve Bank of New York and the European Central Bank.

Accepted Answer

The answer of In a short essay, compare the roles...

Question 13

The purchasing power parity theory claims that a change in relative ________ between two countries must cause a change in ________ in order to keep the prices of goods in two countries fairly similar.

Accepted Answer

The purchasing power parity (PPP) theory posits that changes in inflation rates between two countries lead to changes in exchange rates. This adjustment ensures that the price levels of goods and services remain relatively consistent across countries, maintaining the purchasing power of currencies.

Question 14

Country X has a floating rate for luxury goods and a lower rate for semi-manufactured goods.Which of the following is most likely used by Country X?

Accepted Answer

Country X most likely uses multiple exchange rates to differentiate between the floating rate for luxury goods and the lower rate for semi-manufactured goods. This allows for greater control over the flow of these goods, and can be used to encourage local production of certain goods while still allowing for imports of luxury items. Import deposit requirements, import licensing, and quantity controls do not address the issue of differentiating between rates for luxury and semi-manufactured goods.

Question 15

All of the following are ways to control currency convertibility EXCEPT ________.

Accepted Answer

Purchasing power parity is not a method for controlling currency convertibility. It is a foreign exchange theory that suggests exchange rates should move towards equalizing the prices of goods and services between countries. Import licenses, multiple exchange rates, and import deposits are all examples of methods used to control currency convertibility.

Question 16

The major objective of the European Central Bank is to control taxes as a means of deficit spending.

Accepted Answer

The major objective of the European Central Bank is to maintain price stability within the Eurozone through monetary policy, rather than controlling taxes or managing deficit spending.

Question 17

The ________ is the currency most widely used as a reserve asset.

Accepted Answer

The U.S. dollar is the currency most widely used as a reserve asset, meaning central banks and other financial institutions hold significant quantities of U.S. dollars as part of their foreign exchange reserves. This is largely due to the stability and liquidity of the U.S. dollar in global markets.

Question 18

The central bank in the United States is the ________.

Accepted Answer

The Federal Reserve System is the central bank in the United States. The Board of Governors serves as the main governing body for the Federal Reserve System, but it is not the central bank itself. The U.S. Treasury is responsible for issuing and managing the country's currency, but it is not the central bank. The U.S. Exchange Reserve is not a recognized entity in the U.S. financial system.

Question 19

A form of currency control that often applies to tourism because it limits the amount of currency that someone can get from the bank for foreign travel is known as ________.

Accepted Answer

The answer of A form of currency control that often...

Question 20

Governments use a multiple exchange rate system to ________.

Accepted Answer

Governments use a multiple exchange rate system to control foreign-exchange convertibility, which means they regulate the availability and amount of foreign currency that can be exchanged for the domestic currency. This can help prevent currency speculation, manage inflation, and maintain a stable balance of payments. The other choices are not relevant to the use of a multiple exchange rate system.

Quiz 10: The Determination of Exchange Rates

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

Thomas is planning a vacation to Country X.On a tourism Web site, he reads that the government of Country X limits the amount of money a tourist may convert into the country's currency.Country X most likely uses which of the following?

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

Fully convertible currencies are also called ________.

Given the daily volume of foreign-exchange transactions, it is most accurate to say which of the following?

Describe the exchange rate arrangements used in the EU, Hong Kong, China, and the U.S.

A country's central bank is responsible for ________.

According to the Treaty of Maastricht, a euro applicant must have a total outstanding government debt that does not exceed 60% of its GDP.

A black market exists when ________.

Hard currencies are usually ________.

If inflation in the United States is relatively higher than inflation in Japan, and the Japanese government wants to keep the exchange rate fixed between the yen and the dollar, it should most likely ________.

In a short essay, compare the roles of the Federal Reserve Bank of New York and the European Central Bank.

The purchasing power parity theory claims that a change in relative between two countries must cause a change in in order to keep the prices of goods in two countries fairly similar.

Country X has a floating rate for luxury goods and a lower rate for semi-manufactured goods.Which of the following is most likely used by Country X?

All of the following are ways to control currency convertibility EXCEPT ________.

The major objective of the European Central Bank is to control taxes as a means of deficit spending.

The ________ is the currency most widely used as a reserve asset.

The central bank in the United States is the ________.

A form of currency control that often applies to tourism because it limits the amount of currency that someone can get from the bank for foreign travel is known as ________.

Governments use a multiple exchange rate system to ________.