Deck 19: International Monetary Regimes

Question 1

A specie standard has less stable exchange rates than the Bretton Woods system did.

Answer 1

False

Question 2

A disadvantage of the free float is that foreigners are unable to buy domestic corporate bonds.

Answer 2

False

Question 3

The advantage of a dirty float is that a country is not required to keep foreign reserves.

Answer 3

False

Question 4

England chose to opt out of the European Monetary Union to keep control of its monetary policy.

Question 5

Capital mobility was restricted under the Bretton Woods System.

Question 6

A purchase of international reserves by a central bank could be sterilized by a sale of bonds of the same value.

Question 7

The system of exchange rates operating in the developed world since 1972 is called the Bretton Woods system.

Question 8

The United States was on a gold standard throughout its history until the Great Depression.

Question 9

A gold standard automatically implements pro-cyclical monetary policy, ceteris paribus.

Question 10

Thailand is an example of a country that ran out of reserves defending a fixed exchange rate.

Question 11

A purchase of international reserves using domestic currency causes that currency to appreciate.

Question 12

A disadvantage of a managed float is that a country may lose control of domestic monetary policy at times.

Question 13

The weakening of a currency under a fixed exchange rate regime is called a devaluation.

Question 14

For a country to always have control over domestic monetary policy, it must allow

Question 15

Under Europe's exchange rate mechanism the reserve currency was the German mark.

Question 16

Under a specie standard, a country does not need a central bank.

Question 17

Under a dirty float, a country allows exchange rates to float between two boundaries.

Question 18

The ECB cannot simultaneously raise employment in Italy while fighting inflation in Ireland. This problem arises because exchange rates are fixed between countries using the euro.

Question 19

The problem for a central bank of running out of international reserves arises when it tries to prevent a depreciation of its currency.

Question 20

An advantage of a fixed exchange rate regime is that the central bank does not have to keep foreign reserves.

Question 21

The BWS system came to an end because the United States continued to issue currency without increasing its gold reserve.

Question 22

Which of the following regimes requires restrictions on capital mobility?

A) gold standard
B) Bretton-Woods
C) free float
D) none of the above

Question 23

A major advantage of a specie standard as an exchange rate regime is

A) discretionary monetary policy is effective.
B) the currency is guaranteed to appreciate.
C) exchange rates are stable.
D) none of the above.

Question 24

Which of the following regimes has/had the most stable exchange rates?

A) gold standard
B) Bretton-Woods
C) free float
D) dirty float

Question 25

China has adopted a fixed exchange rate to make their purchases of commodities such as oil less expensive.

Question 26

When a currency is undervalued, the central bank must appreciate its domestic currency by

A) exchanging it for international reserves.
B) raising interest rates.
C) asking the IMF for a loan.
D) none of the above.

Question 27

Which of the following is not part of the trilemma of international monetary regimes?

A) free trade
B) free capital flows
C) effective monetary policy
D) fixed exchange rate

Question 28

A country that adopts a policy of fixing an interest rate must also have a free float exchange rate regime.

Question 29

A major advantage of a free floating exchange rate regime is

A) discretionary monetary policy is effective.
B) foreign purchases of domestic industries is restricted.
C) the future value of a currency does not depend on policy decisions.
D) none of the above.

Question 30

Because of China's fixed exchange rate, they have acquired a large reserve of foreign assets.

Question 31

Speculators often hasten the process where a country must abandon a currency peg.

Question 32

Under the gold standard, if a country's currency depreciated sufficiently below the fixed conversion rate for gold, then

A) gold would flow out of the country.
B) gold would flow into the country.
C) the central bank would have to buy gold.
D) the central bank would have to sell gold.

Question 33

The two major types of fixed exchange regimes were the Bretton Woods and dirty float.

Question 34

Which of the following regimes allows for effective domestic monetary policy?

A) gold standard
B) free float
C) fixed exchange rate
D) none of the above

Question 35

A problem with hard pegs and fixed exchange rates is that the exchange rate cannot adjust to changing economics conditions.

Question 36

A government using a currency board backs its own currency with a foreign currency.

Question 37

A free float is characterized by

A) exchange rate volatility.
B) international capital mobility.
C) both a and b.
D) none of the above.

Question 38

The MB decreases when central banks sell international reserves.

Question 39

Central banks influence the foreign exchange rate by only selling international reserves.1

Question 40

A sterilized purchase of foreign reserves by a central bank will cause its currency to depreciate.

Question 41

An unsterilized sale of international reserves by a central bank is meant to make its currency

A) appreciate.
B) depreciate.
C) neither appreciate nor depreciate.
D) cannot be determined.

Question 42

The Bretton Woods system was an example of

A) a specie standard.
B) a managed fixed exchange rate regime.
C) dollarization.
D) managed float.

Question 43

The Fed buys $20,000 in foreign reserves. This intervention is sterilized if they also

A) sell $20,000 in U.S. bonds.
B) buy $20,000 in U.S. bonds.
C) decrease the MB by 20,000.
D) do nothing.

Question 44

A sterilized purchase of international reserves by a central bank is meant to make its currency

A) appreciate.
B) depreciate.
C) neither appreciate nor depreciate.
D) cannot be determined.

Question 45

Dollarization is a type of what exchange rate regime?

A) dirty standard
B) free float
C) fixed exchange rate
D) none of the above

Question 46

A country that commits to a maximum and minimum allowable exchange rate at a given time uses a

A) dirty float.
B) managed fixed exchange rate.
C) specie standard.
D) all of the above.

Question 47

In 2008, Poland was forced to devalue its currency against the Euro. Which of the following groups was most damaged?

A) Polish producers of export goods
B) German consumers of Polish imports
C) Polish homeowners with euro-denominated mortgages
D) German homeowners with zloty-denominated mortgages

Question 48

The difference between dollarization and a currency board is that

A) dollarization is a type of fixed exchange rate regime while a currency board is not.
B) the government earns seigniorage under a currency board.
C) a currency board uses specie to set a minimum value for the exchange rate.
D) none of the above.

Question 49

Which of the following is a type of fixed exchange rate regime?

A) gold standard
B) currency board
C) dollarization
D) all of the above

Question 50

An exchange rate regime where a country slowly adjusts the maximum and minimum values for the exchange rate is called a

A) crawling peg.
B) free float.
C) currency board.
D) none of the above.

Question 51

The balance sheet below shows the changes resulting from a central bank intervention in the foreign exchange market.

A) sterilized, appreciate.
B) sterilized, depreciate.
C) unsterilized, appreciate.
D) none of the above.

Question 52

A country that uses inflation targeting must have what type of exchange rate regime?

A) free float
B) managed float
C) dollarization
D) currency board

Question 53

The textbook recommends what type of exchange rate regime for developing countries?

A) gold standard
B) free float
C) currency board
D) none of the above

Question 54

Under a dirty float, a country must sell international reserves when its exchange rate (in terms of a foreign currency) reaches its

A) maximum.
B) minimum.
C) both of the above.
D) neither of the above.

Question 55

Which of the following countries was forced to devalue their currency and break their dirty float commitment?

A) Great Britain
B) Thailand
C) China
D) none of the above

Question 56

The balance sheet below shows the changes resulting from a central bank intervention in the foreign exchange market.

A) sterilized, appreciate.
B) sterilized, depreciate.
C) unsterilized, appreciate.
D) unsterilized, depreciate.

Question 57

Some developing countries adopted a managed float instead of a free float because

A) a managed float does not require that they hold foreign reserves.
B) exchange rates are less volatile under a managed float.
C) there are restrictions on capital mobility under a free float.
D) none of the above.

Question 58

A disadvantage for China of keeping its currency pegged at a relatively weak level is

A) the price of their imports is high.
B) they must hold low yielding foreign bonds.
C) foreign domestic investment is limited.
D) all of the above.

Question 59

Seigniorage is

A) profits from the issuance of money.
B) depreciation of a domestic currency.
C) appreciation of the domestic currency.
D) none of the above.

Question 60

The United States currently (2012) has what type of exchange rate regime?

A) free float
B) managed float
C) dollarization
D) currency board

Question 61

Explain what is meant by the "trilemma of international monetary regimes."

Question 62

What caused countries to move away from the Bretton Woods system?

Question 63

Would Norway be better off fixing their currency to the euro or the Japanese yen? Why?

Question 64

What part of the trilemma does a free floating exchange rate regime fail to accomplish?

Question 65

What is the major advantage and disadvantage of China's policy of fixing their exchange rate at a weak level against the dollar?

Question 66

Does the balance sheet below show a sterilized or unsterilized intervention in the foreign exchange market? Explain briefly.

Question 67

Show the changes to the balance sheet for a central bank that makes an unsterilized purchase of $300 million in international reserves. What would be the impact on the currency of the currency?

Question 68

Show the changes to the balance sheet for a central bank that makes a sterilized sale of $400 million in international reserves. What would be the impact on the currency of the currency?

Question 69

What are the four major types of exchange rate regimes?

Question 70

Which of the following is true for countries following the gold standard exchange rate system?

A) Discretionary fiscal policy in these countries is hindered.
B) These countries are relatively less susceptible to domestic shocks.
C) The value of the exchange rate is relatively stable.
D) These countries are not prone to deflation or inflation.

Question 71

What part of the trilemma does a specie standard exchange rate regime fail to accomplish?

Question 72

During the first century of the United States' existence, its predominant exchange rate regime was a

A) specie standard.
B) managed exchange rate.
C) free float.
D) none of the above.

Question 73

What is seigniorage?

Question 74

The major advantage of fixed exchange rates is that _____.

A) is allows for free capital mobility
B) it ensures exchange rate stability for importers and exporters
C) central banks can exercise monetary policy discretion
D) it increases the foreign exchange reserves with the central bank

Question 75

How does IMF lending create a moral hazard problem?

Question 76

Argentina's currency board ran into trouble when the country went into a recession. Explain the problem in terms of monetary policy.

Question 77

Geologists discover that under the glaciers, Antarctica is made of gold. What would be the impact on the price level for a country under the gold standard? under a free float?