Question 1

Which of the following is not true regarding the eurozone?

Accepted Answer

Members of the eurozone do have the ability to apply their own fiscal policies, such as setting their own budgets and deciding on their own levels of taxation and government spending, although they are subject to certain rules and criteria to ensure fiscal stability across the eurozone.

Question 2

A primary result of the Smithsonian Agreement was:

Accepted Answer

The primary result of the Smithsonian Agreement in 1971 was the establishment of a new exchange rate regime that allowed exchange rates of most major countries to fluctuate 2.25 percent above or below their initially set values. This was done to address the imbalance of the U.S. dollar's value and to stabilize the international monetary system.

Question 3

Assume that the Fed intervenes by exchanging dollars for euros in the foreign exchange market. This will cause an ____ shift in the demand for euros, and will place _____ pressure on the value of the euro.

Accepted Answer

When the Fed exchanges dollars for euros, it increases the demand for euros, causing an outward shift in the demand curve for euros. This increased demand places upward pressure on the value of the euro.

Question 4

Assume that the dollar has been consistently depreciating over a long period. The Fed decides to counteract this movement by intervening in the foreign exchange market using sterilized intervention. The Fed would:

Accepted Answer

Sterilized intervention involves the central bank buying or selling its own currency on the foreign exchange market while simultaneously conducting offsetting operations in the domestic bond market to neutralize the impact on the domestic money supply. In this case, to counteract a depreciating dollar, the Fed would buy dollars with foreign currency to increase the value of the dollar. To sterilize this intervention and prevent an increase in the money supply (which could potentially lead to further depreciation), the Fed would also buy Treasury securities with dollars, removing those dollars from circulation.

Question 5

From a financial management perspective, which of the following is true regarding the introduction of the euro?

Accepted Answer

The introduction of the euro led to a decline in transaction costs for MNCs conducting transactions within Europe, as they no longer needed to exchange currencies between each individual country. The other options are not true - U.S.-based MNCs are still subject to exchange rate risk with the euro, the euro is not pegged to all other European currencies, and the euro did not replace the British pound (which is still used in the UK).

Question 6

​The exchange rate mechanism (ERM) refers to the method of linking ____ currencies to each other within boundaries.

Accepted Answer

The ERM refers to the method of linking European currencies to each other within boundaries.

Question 7

Which of the following countries have not adopted the euro?

Accepted Answer

Switzerland has not adopted the euro. Germany, Italy, and France have all adopted the euro as their official currency.

Question 8

​If the Fed desires to strengthen the dollar without affecting the dollar money supply, it should:

Accepted Answer

Exchanging foreign currencies for dollars and buying existing Treasury securities with dollars would strengthen the dollar without affecting the dollar money supply. This approach increases demand for the dollar through the currency exchange and removes dollars from circulation by purchasing Treasury securities, but since these are open market operations, they are designed to not alter the overall money supply.

Question 9

The euro has not been adopted by:

Accepted Answer

The United Kingdom has not adopted the euro and instead uses the pound as its currency. Slovenia, Germany, and France are all part of the Eurozone and use the euro as their currency.

Question 10

​Under a managed float exchange rate system, the Fed may attempt to stimulate the U.S. economy by ____ the dollar. Such an adjustment in the dollar's value should ____ the U.S. demand for products produced by major foreign countries.

Accepted Answer

The answer of ​Under a managed float exchange rate system,...

Question 11

During the period 1944-1971, the United States used a ____ system.

Accepted Answer

During the period 1944-1971, the United States used a fixed exchange rate system known as the Bretton Woods system, which was established to ensure stability in international financial transactions. Under this system, the US dollar was fixed to gold at a rate of $35 per ounce, and other currencies were fixed to the US dollar at specific rates.

Question 12

Which of the following is an example of direct intervention in foreign exchange markets?

Accepted Answer

Direct intervention in foreign exchange markets involves physically buying or selling currencies. Exchanging dollars for foreign currency is a clear example of direct intervention. Lowering interest rates (A) or increasing the inflation rate (B) are examples of monetary policy tools that indirectly affect exchange rates. Imposing barriers on international trade (D) is a form of protectionism that can indirectly impact exchange rates.

Question 13

Which of the following is true about the Asian crisis?

Accepted Answer

The Asian crisis was preceded by several years of large capital inflows to the affected countries, which fueled rapid economic growth and development, but also created vulnerabilities and imbalances in the financial systems. These inflows were largely financed by foreign lenders and investors who had confidence in the credibility and stability of the Asian economies, but also exposed them to risks of sudden reversals and capital flights during periods of market turbulence and uncertainty.

Question 14

​China's yuan is presently:

Accepted Answer

China's central bank, the People's Bank of China, intervenes in the foreign exchange market to manage the value of yuan against other currencies. Although there is flexibility in yuan's exchange rate, the government still maintains a certain level of control over it.

Question 15

A primary result of the Bretton Woods Agreement was:

Accepted Answer

The Bretton Woods Agreement established that exchange rates of most major currencies were to be allowed to fluctuate 1 percent above or below their initially set values. This was known as the "peg" system and was in place until it collapsed in the early 1970s. This system helped to promote stability and predictability in international trade and investment.

Question 16

​If the Fed desires to weaken the dollar without affecting the dollar money supply, it should:

Accepted Answer

Exchanging dollars for foreign currencies increases the supply of dollars in the foreign exchange market, leading to a depreciation of the dollar. Selling Treasury securities for dollars does not affect the money supply if the Fed is merely altering the composition of its balance sheet without changing the total amount of assets.

Question 17

Which of the following is a disadvantage of a fixed exchange rate system?

Accepted Answer

In a fixed exchange rate system, the government has the power to change the value of the currency. This can lead to uncertainty for businesses and investors, as they cannot predict when and how the government might adjust the exchange rate. This can create instability in the economy and potentially discourage foreign investment.

Question 18

​Assume Countries A, B, and C produce goods that are substitutes of each other and that these countries engage in trade with each other. Assume that Country A's currency floats against Country B's currency, and that Country C's currency is pegged to B's. If A's currency depreciates against B, then A's exports to C should ____, and A's imports from C should ____.

Accepted Answer

When Country A's currency depreciates against Country B's currency, Country A's goods become cheaper for both B and C (since C's currency is pegged to B's). This makes A's exports to C more competitive, likely increasing them. Conversely, C's goods become relatively more expensive for A, likely decreasing A's imports from C.

Question 19

Which of the following is not true regarding Thailand before the Asian crisis?

Accepted Answer

The statement "Thailand was one of the slowest growing countries" is not true. Before the Asian crisis, Thailand was actually one of the fastest-growing countries in Southeast Asia with an average annual growth rate of 7.5%.

Question 20

The euro is the currency:

Accepted Answer

The euro was not adopted by all European countries, western or eastern, as of 1999. It was initially adopted by 11 countries, and not all European countries have adopted it since.

Quiz 6: Government Influence on Exchange Rates

Which of the following is not true regarding the eurozone?

A primary result of the Smithsonian Agreement was:

Assume that the Fed intervenes by exchanging dollars for euros in the foreign exchange market. This will cause an shift in the demand for euros, and will place _ pressure on the value of the euro.

Assume that the dollar has been consistently depreciating over a long period. The Fed decides to counteract this movement by intervening in the foreign exchange market using sterilized intervention. The Fed would:

From a financial management perspective, which of the following is true regarding the introduction of the euro?

The exchange rate mechanism (ERM) refers to the method of linking ____ currencies to each other within boundaries.

Which of the following countries have not adopted the euro?

If the Fed desires to strengthen the dollar without affecting the dollar money supply, it should:

The euro has not been adopted by:

Under a managed float exchange rate system, the Fed may attempt to stimulate the U.S. economy by the dollar. Such an adjustment in the dollar's value should the U.S. demand for products produced by major foreign countries.

During the period 1944-1971, the United States used a ____ system.

Which of the following is an example of direct intervention in foreign exchange markets?

Which of the following is true about the Asian crisis?

China's yuan is presently:

A primary result of the Bretton Woods Agreement was:

If the Fed desires to weaken the dollar without affecting the dollar money supply, it should:

Which of the following is a disadvantage of a fixed exchange rate system?

Which of the following is not true regarding Thailand before the Asian crisis?

The euro is the currency:

Quiz 6: Government Influence on Exchange Rates

Which of the following is not true regarding the eurozone?

A primary result of the Smithsonian Agreement was:

Assume that the Fed intervenes by exchanging dollars for euros in the foreign exchange market. This will cause an ____ shift in the demand for euros, and will place _____ pressure on the value of the euro.

Assume that the dollar has been consistently depreciating over a long period. The Fed decides to counteract this movement by intervening in the foreign exchange market using sterilized intervention. The Fed would:

From a financial management perspective, which of the following is true regarding the introduction of the euro?

​The exchange rate mechanism (ERM) refers to the method of linking ____ currencies to each other within boundaries.

Which of the following countries have not adopted the euro?

​If the Fed desires to strengthen the dollar without affecting the dollar money supply, it should:

The euro has not been adopted by:

​Under a managed float exchange rate system, the Fed may attempt to stimulate the U.S. economy by ____ the dollar. Such an adjustment in the dollar's value should ____ the U.S. demand for products produced by major foreign countries.

During the period 1944-1971, the United States used a ____ system.

Which of the following is an example of direct intervention in foreign exchange markets?

Which of the following is true about the Asian crisis?

​China's yuan is presently:

A primary result of the Bretton Woods Agreement was:

​If the Fed desires to weaken the dollar without affecting the dollar money supply, it should:

Which of the following is a disadvantage of a fixed exchange rate system?

Which of the following is not true regarding Thailand before the Asian crisis?

The euro is the currency:

Assume that the Fed intervenes by exchanging dollars for euros in the foreign exchange market. This will cause an shift in the demand for euros, and will place _ pressure on the value of the euro.

The exchange rate mechanism (ERM) refers to the method of linking ____ currencies to each other within boundaries.

If the Fed desires to strengthen the dollar without affecting the dollar money supply, it should:

Under a managed float exchange rate system, the Fed may attempt to stimulate the U.S. economy by the dollar. Such an adjustment in the dollar's value should the U.S. demand for products produced by major foreign countries.

China's yuan is presently:

If the Fed desires to weaken the dollar without affecting the dollar money supply, it should: