Question 1

A central bank ________ of domestic currency and corresponding ________ of foreign assets in the foreign exchange market leads to an equal ________ in its international reserves and the monetary base.

Accepted Answer

A

Question 2

A foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called

Accepted Answer

A sterilized foreign exchange intervention involves the central bank buying or selling foreign currency in the foreign exchange market while conducting an offsetting open market operation (such as buying or selling government securities) that leaves the level of the monetary base unchanged. This is done in order to influence the exchange rate without affecting the money supply or interest rates in the domestic economy.

Question 3

A Federal Reserve decision to sell dollars in order to buy foreign assets in the foreign exchange market has the same effect as an open market ________ of bonds to ________ the monetary base and the money supply.

Accepted Answer

When the Federal Reserve buys foreign assets, it increases the monetary base and money supply, similar to an open market purchase of bonds.

Question 4

If the current account balance shows a surplus,and capital account receipts exceed capital account payments,then the net change in government international reserves must be ________,indicating a(n)________ in U.S.international reserves.

Accepted Answer

If the current account balance shows a surplus, it means that the country's exports exceed its imports. If capital account receipts exceed capital account payments, it means that more money is flowing into the country as investments than flowing out of the country as investments. When there is a surplus in both current and capital accounts, it indicates that there is an overall inflow of foreign currency into the country. This leads to an increase in the government's international reserves, which means that the net change in international reserves is positive. Therefore, the correct answer is A) positive; increase, indicating an increase in U.S. international reserves.

Question 5

A current account ________ indicates that the United States is ________ its claims on foreign wealth.

Accepted Answer

A current account surplus indicates that a country is exporting more than it is importing, which means it is increasing its claims on foreign wealth through earning more from exports than it spends on imports.

Question 6

An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to

Accepted Answer

Selling domestic currency to purchase foreign assets increases the supply of domestic currency in the foreign exchange market, leading to a depreciation of the domestic currency. However, an unsterilized intervention does not involve offsetting the increase in the money supply with a reduction in other domestic assets or liabilities, thus leading to an increase in the domestic money supply. The gain in international reserves occurs because the foreign assets purchased with domestic currency increase the country's foreign exchange reserves. Therefore, the correct answer is that the unsterilized intervention leads to an increase in the money supply (B) and a gain in international reserves (A), but not an appreciation in the domestic currency (C), which actually depreciates.

Question 7

Holding other factors constant,which of the following would decrease the size of the U.S.current account deficit?

Accepted Answer

An increase in the amount of goods sold to foreigners, also known as an increase in exports, would decrease the size of the U.S. current account deficit as it would result in more money coming into the country from foreign buyers. Option A and B would increase the deficit as more money would be going out to pay for foreign goods and services.

Question 8

Which of the following statements is correct?

Accepted Answer

The balance of payments identity states that the current account balance plus the capital account balance equals the net change in government international reserves. This reflects the fact that any surplus or deficit in the current and capital accounts must be offset by changes in reserves.

Question 9

A current account ________ indicates that the United States is ________ its claims on foreign wealth.

Accepted Answer

A current account deficit indicates that the United States is decreasing its claims on foreign wealth.

Question 10

An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to

Accepted Answer

When domestic currency is sold to purchase foreign assets, international reserves increase, but the money supply does not decrease; it typically increases as the central bank injects domestic currency into the economy.

Question 11

The current account balance plus the capital account balance equals

Accepted Answer

The current account balance measures the flow of goods and services between a country and the rest of the world, while the capital account balance measures the flow of financial capital. The sum of these two balances should be equal to the net change in a country's international reserves. Therefore, the correct choice is C, as it reflects this basic principle of balance of payments accounting. Choices A and B may be related to the balance of payments, but they are not equivalent to the sum of current and capital account balances.

Question 12

A central bank sale of ________ to purchase ________ in the foreign exchange market results in an equal decline in its international reserves and the monetary base.

Accepted Answer

A central bank sale of foreign assets to purchase domestic currency in the foreign exchange market results in an equal decline in its international reserves (because it is using those reserves to make the purchase) and the monetary base (because it is effectively removing domestic currency from circulation, which reduces the amount of money available in the economy).

Question 13

Holding other factors constant,which of the following would increase the size of the U.S.current account deficit?

Accepted Answer

Increasing travel by American college students in Europe would increase the U.S. current account deficit because it involves Americans spending money abroad, which is recorded as a debit in the current account.

Question 14

A central bank sale of ________ to purchase ________ in the foreign exchange market results in an equal rise in its international reserves and the monetary base.

Accepted Answer

When a central bank sells domestic currency to purchase foreign assets, it increases its international reserves and simultaneously increases the monetary base, as the domestic currency is injected into the economy.

Question 15

A Federal Reserve decision to purchase dollars by selling foreign assets in the foreign exchange market has the same effect as an open market ________ of bonds to ________ the monetary base and the money supply.

Accepted Answer

When the Federal Reserve sells foreign assets in the foreign exchange market, it increases the supply of foreign currency and decreases the supply of dollars. This action results in a decrease in the monetary base and money supply. An open market sale of bonds also decreases the monetary base and money supply, making option A the correct answer.

Question 16

The difference between merchandise exports and imports is called the

Accepted Answer

The difference between merchandise exports and imports is referred to as the trade balance. The current account balance refers to the balance of trade, net income from abroad, and net current transfers. The capital account balance tracks the flow of investment in and out of a country, and the balance of payments reflects all transactions between a country's residents and non-residents.

Question 17

Because sterilized interventions mean offsetting open market operations,there is no impact on the monetary base and the money supply,and therefore a sterilized intervention

Accepted Answer

Sterilized interventions have no impact on the monetary base and the money supply, so they do not affect the exchange rate in the short or long run. Therefore, the correct answer is D.

Question 18

Because sterilized interventions mean offsetting open market operations,

Accepted Answer

Sterilized interventions involve offsetting open market operations, which means that the central bank buys or sells foreign exchange in the open market and simultaneously takes an equal and opposite action in the domestic money market. This ensures that there is no impact on the monetary base, the money supply, or the exchange rate.

Question 19

A central bank ________ of domestic currency and corresponding ________ of foreign assets in the foreign exchange market leads to an equal ________ in its international reserves and the monetary base.

Accepted Answer

When a central bank purchases domestic currency and sells foreign assets, it results in a decline in its international reserves and the monetary base.

Question 20

When the central bank allows the purchase or sale of domestic currency to have an effect on the monetary base,it is called

Accepted Answer

An unsterilized foreign exchange intervention is when the central bank allows the purchase or sale of domestic currency to have an effect on the monetary base. In contrast, a sterilized intervention involves offsetting the effects of foreign exchange transactions on the monetary base through offsetting open market operations. The other answer choices are not accurate descriptions of this situation.

Quiz 16: The International Financial System

A central bank of domestic currency and corresponding of foreign assets in the foreign exchange market leads to an equal in its international reserves and the monetary base.

A foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called

A Federal Reserve decision to sell dollars in order to buy foreign assets in the foreign exchange market has the same effect as an open market of bonds to the monetary base and the money supply.

If the current account balance shows a surplus,and capital account receipts exceed capital account payments,then the net change in government international reserves must be ,indicating a(n) in U.S.international reserves.

A current account indicates that the United States is its claims on foreign wealth.

An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to

Holding other factors constant,which of the following would decrease the size of the U.S.current account deficit?

Which of the following statements is correct?

A current account indicates that the United States is its claims on foreign wealth.

An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to

The current account balance plus the capital account balance equals

A central bank sale of to purchase in the foreign exchange market results in an equal decline in its international reserves and the monetary base.

Holding other factors constant,which of the following would increase the size of the U.S.current account deficit?

A central bank sale of to purchase in the foreign exchange market results in an equal rise in its international reserves and the monetary base.

A Federal Reserve decision to purchase dollars by selling foreign assets in the foreign exchange market has the same effect as an open market of bonds to the monetary base and the money supply.

The difference between merchandise exports and imports is called the

Because sterilized interventions mean offsetting open market operations,there is no impact on the monetary base and the money supply,and therefore a sterilized intervention

Because sterilized interventions mean offsetting open market operations,

A central bank of domestic currency and corresponding of foreign assets in the foreign exchange market leads to an equal in its international reserves and the monetary base.

When the central bank allows the purchase or sale of domestic currency to have an effect on the monetary base,it is called

Quiz 16: The International Financial System

A central bank ________ of domestic currency and corresponding ________ of foreign assets in the foreign exchange market leads to an equal ________ in its international reserves and the monetary base.

A foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called

A Federal Reserve decision to sell dollars in order to buy foreign assets in the foreign exchange market has the same effect as an open market ________ of bonds to ________ the monetary base and the money supply.

If the current account balance shows a surplus,and capital account receipts exceed capital account payments,then the net change in government international reserves must be ________,indicating a(n) ________ in U.S.international reserves.

A current account ________ indicates that the United States is ________ its claims on foreign wealth.

An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to

Holding other factors constant,which of the following would decrease the size of the U.S.current account deficit?

Which of the following statements is correct?

A current account ________ indicates that the United States is ________ its claims on foreign wealth.

An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to

The current account balance plus the capital account balance equals

A central bank sale of ________ to purchase ________ in the foreign exchange market results in an equal decline in its international reserves and the monetary base.

Holding other factors constant,which of the following would increase the size of the U.S.current account deficit?

A central bank sale of ________ to purchase ________ in the foreign exchange market results in an equal rise in its international reserves and the monetary base.

A Federal Reserve decision to purchase dollars by selling foreign assets in the foreign exchange market has the same effect as an open market ________ of bonds to ________ the monetary base and the money supply.

The difference between merchandise exports and imports is called the

Because sterilized interventions mean offsetting open market operations,there is no impact on the monetary base and the money supply,and therefore a sterilized intervention

Because sterilized interventions mean offsetting open market operations,

A central bank ________ of domestic currency and corresponding ________ of foreign assets in the foreign exchange market leads to an equal ________ in its international reserves and the monetary base.

When the central bank allows the purchase or sale of domestic currency to have an effect on the monetary base,it is called

A central bank of domestic currency and corresponding of foreign assets in the foreign exchange market leads to an equal in its international reserves and the monetary base.

A Federal Reserve decision to sell dollars in order to buy foreign assets in the foreign exchange market has the same effect as an open market of bonds to the monetary base and the money supply.

If the current account balance shows a surplus,and capital account receipts exceed capital account payments,then the net change in government international reserves must be ,indicating a(n) in U.S.international reserves.

A current account indicates that the United States is its claims on foreign wealth.

A current account indicates that the United States is its claims on foreign wealth.

A central bank sale of to purchase in the foreign exchange market results in an equal decline in its international reserves and the monetary base.

A central bank sale of to purchase in the foreign exchange market results in an equal rise in its international reserves and the monetary base.

A Federal Reserve decision to purchase dollars by selling foreign assets in the foreign exchange market has the same effect as an open market of bonds to the monetary base and the money supply.

A central bank of domestic currency and corresponding of foreign assets in the foreign exchange market leads to an equal in its international reserves and the monetary base.