Question 1

Acting as a fiscal agent is a central bank's role as an agent of its government's finance ministry or treasury department, in which the central bank issues, services, and redeems debts on the government's behalf.

Accepted Answer

Acting as a fiscal agent is indeed a central bank's role as an agent of its government's finance ministry or treasury department, in which the central bank issues, services, and redeems debts on the government's behalf.

Question 2

Central bank adjustments of an interest rate on advances extended at an above-market interest rate constitute:&#10;A) fiscal agent responsibilities.&#10;B) changes in the Lombard rate.&#10;C) reserve requirement alterations.&#10;D) open market operations.

Accepted Answer

Central bank adjustments of an interest rate on advances extended at an above-market interest rate is a change in the Lombard rate. The Lombard rate is the rate at which banks can borrow from the central bank using securities as collateral. By adjusting this rate, the central bank can influence the cost of borrowing for banks and ultimately affect the overall interest rates in the economy. Fiscal agent responsibilities involve managing government finances, reserve requirement alterations involve changes to the amount of reserves that banks must hold, and open market operations involve buying and selling of securities by the central bank to influence money supply and interest rates.

Question 3

The M1 monetary aggregate includes which of the following?&#10;A) bank reserves&#10;B) foreign exchange reserves&#10;C) transactions deposits at banks&#10;D) long-term savings deposits at banks

Accepted Answer

The M1 monetary aggregate includes transactions deposits at banks, which are also known as "checking accounts". Bank reserves (A) and foreign exchange reserves (B) are not included in M1. Long-term savings deposits at banks (D) are included in the broader monetary aggregate known as M2, but not in M1.

Question 4

Central bank interventions to support or speed along the current trend in the market exchange value of its nation's currency entail:&#10;A) leaning against the wind.&#10;B) leaning with the wind.&#10;C) open market operations.&#10;D) sterilization.

Accepted Answer

"Leaning with the wind" refers to a central bank's interventions to support or speed along the current trend in the market exchange value of its nation's currency. This may involve, for example, purchasing its own currency in the foreign exchange market, which both increases demand for the currency and signals to investors that the central bank supports a stronger exchange rate.

Question 5

If a central bank sells $10 million in foreign exchange reserves, sterilizing its intervention requires ____________ in domestic credit in order to _________ the monetary base.&#10;A) no change; increase&#10;B) no change; decrease&#10;C) a $10 million increase; leave unchanged&#10;D) a $10 million decrease; leave unchanged

Accepted Answer

Sterilizing a foreign exchange intervention involves offsetting any impact on the monetary base to leave it unchanged. If a central bank sells $10 million in foreign exchange reserves, it would need to increase domestic credit by $10 million to offset the decrease in the monetary base from the sale, thus leaving the monetary base unchanged.

Question 6

Which of the following types of effects have some economists proposed as a reason why sterilized interventions might influence interest rates and other economic variables?&#10;A) international policy cooperation effects&#10;B) international policy coordination effects&#10;C) optimal currency area effects&#10;D) portfolio balance effects

Accepted Answer

Some economists have proposed portfolio balance effects as a reason why sterilized interventions might influence interest rates and other economic variables. Sterilized interventions involve buying or selling foreign currency without changing the domestic money supply, which can affect the composition of private portfolios and therefore affect interest rates and other economic variables.

Question 7

A beggar-thy-neighbor effect arises when an expansionary policy action in one nation causes a _________ effect on another nation-s economy due to structural __________.&#10;A) contractionary; independence&#10;B) contractionary; interdependence&#10;C) expansionary; independence&#10;D) expansionary; interdependence

Accepted Answer

A beggar-thy-neighbor effect occurs when a country's expansionary policy (like devaluing its currency) negatively impacts another country's economy, highlighting the structural interdependence between nations. This is because such policies often aim to boost a country's own economic situation at the expense of others, typically through shifting demand away from foreign products in favor of domestic ones.

Question 8

Economists refer to the development of institutions and procedures through which central banks share data and inform one another about their policy objectives and strategies as:&#10;A) sterilized interventions.&#10;B) unsterilized interventions.&#10;C) international policy coordination.&#10;D) international policy cooperation.

Accepted Answer

International policy cooperation involves central banks sharing data and information about their policy objectives and strategies to align and coordinate their actions for mutual benefit.

Question 9

A geographic area within which labor is sufficiently mobile to permit speedy adjustments to payment imbalances and regional unemployment to permit exchange rates to be fixed and a common currency to be adopted is known as an optimal

A) currency area.
B) sterilization area.
C) fiscal area.
D) banking area.

Accepted Answer

An optimal currency area refers to a geographic area where labor can easily move and adjust to economic imbalances, allowing for a fixed exchange rate and a common currency. This is necessary to ensure the stability and effectiveness of a shared currency system. The other options (sterilization area, fiscal area, banking area) do not involve the necessary mobility of labor and economic adjustment factors necessary for an optimal currency area.

Question 10

A central banking function in which the central bank stands willing to extend credit to any temporarily illiquid but otherwise solvent banking institution to prevent its illiquid position from leading to a general loss of confidence in that institution is known as:

A) banker-s bank.
B) fiscal agent.
C) monetary authority.
D) lender of last resort.

Accepted Answer

The function described in the question is that of a lender of last resort, which is the role of a central bank to provide liquidity support to financial institutions in times of crisis to prevent a systemic banking crisis. The other choices do not accurately describe this function. A banker's bank is a bank that primarily provides services to other banks, a fiscal agent is a governmental agency responsible for managing financial transactions, and a monetary authority is an organization that manages a country's monetary policy.

Question 11

The monetary base includes which of the following?&#10;A) domestic credit at the central bank&#10;B) transactions deposits at private banks&#10;C) loans extended by private banks&#10;D) savings deposits at private banks

Accepted Answer

The answer of The monetary base includes which of the...

Question 12

In the context of recent events that have adversely affected nations participating in the European Monetary and Economic Union, &#34;PIIGS&#34; refers to two connected issues: Porfolio Interdependence and Integration of Global Services.

Accepted Answer

The answer of In the context of recent events that...

Question 13

The world-s first central bank was established in England.

Accepted Answer

The answer of The world-s first central bank was established...

Question 14

The monetary base can be viewed either as the sum of domestic credit and foreign exchange reserves, or as the sum of bank reserves and currency.

Accepted Answer

The answer of The monetary base can be viewed either...

Question 15

An example of a sterilized foreign exchange market intervention is a purchase of foreign exchange reserves that is exactly matched by an open market purchase.

Accepted Answer

The answer of An example of a sterilized foreign exchange...

Question 16

An exchange rate adjustment resulting from changes in government or central bank holdings of foreign currency denominated financial instruments that influence the equilibrium prices of the instruments is known as the announcement effect.

Accepted Answer

The answer of An exchange rate adjustment resulting from changes...

Question 17

Economists refer the joint determination of monetary policies by a group of central banks for the intended combined benefit of the nations they represent as international policy cooperation.

Accepted Answer

The answer of Economists refer the joint determination of monetary...

Question 18

A stimulus to economic activity in one nation that results from an increase in economic activity in another country is called a locomotive effect.

Accepted Answer

The answer of A stimulus to economic activity in one...

Question 19

A set of nations that opt to utilize a common currency is called a free-currency area.

Accepted Answer

The answer of A set of nations that opt to...

Question 20

Structural interdependence involves interconnectedness of national markets for goods, services, and financial assets causing events in one nation to affect the economies of other nations.

Accepted Answer

The answer of Structural interdependence involves interconnectedness of national markets...

Question 21

Which one of the following countries is a &#34;PIIGS&#34; nation?&#10;A) Poland&#10;B) Indonesia&#10;C) Greece&#10;D) Singapore

Accepted Answer

The answer of Which one of the following countries is...

Deck 9: Global Money and Banking: Where Central Banks Fit Into the World Economy