Question 1

To temporarily offset a $\underline {   \text { depreciation } }$ in the dollar's exchange value, the Federal Reserve could ____ the U.S. money supply which would promote a (an) ____ in U.S. interest rates and a (an) ____ in investment flows to the United States.
A) Increase, decrease, decrease
B) Increase, increase, increase
C) Decrease, decrease, increase
D) Decrease, increase, increase

Accepted Answer

To temporarily offset depreciation in the dollar's exchange value, the Federal Reserve could decrease the U.S. money supply which would promote an increase in U.S. interest rates and an increase in investment flows to the United States.

Question 2

Which of the following is $\underline { \text { not }   }$ a potential $\underline {  \text { disadvantage }  }$ of freely floating exchange rates?
A) They require larger amounts of international reserves than other exchange systems
B) Demand schedules for imports and exports may be price speculation
C) There may occur large amounts of destabilizing speculation
D) Capital movements among nations may be hindered via exchange rate fluctuations

Accepted Answer

The answer of Which of the following is \(\underline {...

Question 3

Under a floating exchange-rate system, if the U.S. dollar $\underline {  \text { depreciates }  }$against the Swiss franc:
A) American exports to Switzerland will be cheaper in francs
B) American exports to Switzerland will be more expensive in francs
C) American imports from Switzerland will be cheaper in dollars
D) None of the above

Accepted Answer

If the U.S. dollar depreciates against the Swiss franc, it means that it takes more dollars to purchase one Swiss franc. This makes American goods cheaper for Swiss buyers, resulting in an increase in American exports to Switzerland.

Question 4

A market-determined $\underline {   \text { decrease }  }$ in the dollar price of the pound is associated with:
A) Revaluation of the dollar
B) Devaluation of the dollar
C) Appreciation of the dollar
D) Depreciation of the dollar

Accepted Answer

The answer of A market-determined \(\underline {   \text...

Question 5

To temporarily offset an $\underline {  \text { appreciation }  }$ in the dollar's exchange value, the Federal Reserve could ____ the U.S. money supply which would promote a (an) ____ in U.S. interest rates and a ____ in investment flows to the United States.
A) Increase, decrease, decrease
B) Increase, increase, decrease
C) Decrease, decrease, decrease
D) Decrease, increase, decrease

Accepted Answer

The answer of To temporarily offset an \(\underline { ...

Question 6

In a managed floating exchange-rate system, temporary stabilization of the dollar's exchange value requires the Federal Reserve to adopt a (an) ____ monetary policy when the dollar is appreciating and a (an) ____ policy when the dollar is depreciating.
A) Expansionary, expansionary
B) Expansionary, contractionary
C) Contractionary, expansionary
D) Contractionary, contractionary

Accepted Answer

The answer of In a managed floating exchange-rate system, temporary...

Question 7

A $\underline {  \text { surplus }  }$ nation can $\underline {   \text { reduce }  }$ its payments imbalance by:
A) Applying tariffs and trade restrictions on imports
B) Revaluing its national currency
C) Increasing its labor productivity
D) Setting higher interest rates than its trading partners

Accepted Answer

The answer of A \(\underline {  \text { surplus...

Question 8

A potential $\underline {  \text { limitation }  }$ of freely floating exchange rates is that:
A) Countries require a larger amount of international reserves than otherwise
B) Countries are unable to initiate economic policies to combat unemployment
C) Exchange rates may experience wide and frequent fluctuations
D) Demand tends to be highly sensitive to price movements

Accepted Answer

Freely floating exchange rates can be subject to unpredictable fluctuations due to market forces such as changes in supply and demand. This can create uncertainty and instability for businesses and investors, which could potentially lead to economic issues such as inflation or a recession. Additionally, countries may face challenges in managing their international trade and financial transactions if exchange rates are constantly changing.

Question 9

If the Japanese yen $\underline {  \text { depreciates }  }$against other currencies in the exchange markets, this will:
A) Have no effect on the Japanese balance of trade
B) Tend to worsen the Japanese balance of trade
C) Tend to improve the Japanese balance of trade
D) None of the above

Accepted Answer

A depreciation of the Japanese yen means that it becomes cheaper in foreign currency terms, making Japanese exports less expensive and more competitive in international markets. As a result, demand for Japanese exports will increase, leading to an improvement in the Japanese balance of trade.

Question 10

Proponents of freely floating exchange rates maintain that:
A) Central banks can easily modify fluctuations in exchange rates
B) The system allows policy makers freedom in pursuing domestic economic goals
C) Inelastic demand schedules prevent large fluctuations in exchange rates
D) Inelastic supply schedules prevent large fluctuations in exchange rates

Accepted Answer

Proponents of freely floating exchange rates argue that it allows policy makers the freedom to pursue domestic economic goals without having to worry about exchange rate stability. This is in contrast to fixed exchange rate systems, where policy makers may have to sacrifice their domestic goals in order to maintain a fixed exchange rate. Therefore, option B is the correct answer. Options A, C, and D are incorrect because they suggest that fluctuations in exchange rates can be easily avoided, which is not necessarily true in a freely floating exchange rate system.

Question 11

Under a floating exchange-rate system, which of the following best leads to a $\underline {  \text { depreciation }  }$ in the value of the Canadian dollar?
A) A decrease in the Canadian money supply
B) A fall in the Canadian interest rate
C) An increase in national income overseas
D) Rising inflation overseas

Accepted Answer

The answer of Under a floating exchange-rate system, which of...

Question 12

Suppose Sweden's inflation rate is $\underline {  \text { less }  }$ than that of its trading partner. Under a floating exchange rate system, Sweden would experience a:
A) Appreciation in its currency
B) Depreciation in its currency
C) Fall in the level of its exports
D) Rise in the level of its imports

Accepted Answer

A lower inflation rate in Sweden compared to its trading partner would imply that the prices of Swedish goods and services would be relatively cheaper than those of its trading partner. This would lead to an increase in the demand for Swedish goods, which in turn would lead to an increase in the demand for the Swedish currency to purchase those goods, causing an appreciation of the Swedish currency.

Question 13

A potential $\underline {   \text { disadvantage } }$ of freely floating exchange rates is that there would:
A) Exist excessive amounts of hedging in the foreign exchange markets
B) Be a lack of incentive to initiate exchange arbitrage
C) Be excessive amounts of destabilizing speculation
D) Exist a devaluation bias in the exchange markets

Accepted Answer

Freely floating exchange rates can lead to excessive amounts of destabilizing speculation as market participants may try to profit from short-term fluctuations in exchange rates, leading to increased volatility in the currency markets. This can create uncertainty for businesses and investors, potentially leading to economic instability.

Question 14

The central bank of the United Kingdom could $\underline { \text { prevent }   }$ the pound from$\underline {  \text { appreciating }  }$ by:
A) Selling pounds on the foreign exchange market
B) Buying pounds on the foreign exchange market
C) Reducing its inflation rate relative to its trading partners
D) Promoting domestic investment and technological development

Accepted Answer

When the central bank sells pounds on the foreign exchange market, the supply of pounds increases, which lowers the value of the pound relative to other currencies, thus preventing it from appreciating. Buying pounds on the foreign exchange market would increase demand for pounds and likely lead to an appreciation, which is not the desired outcome in this scenario. Reducing inflation relative to trading partners and promoting domestic investment and technological development could have long-term effects on the exchange rate, but they would not be as immediate or direct as selling pounds on the foreign exchange market.

Question 15

Under a floating exchange rate system, if there occurs a $\underline {  \text { fall }  }$in the dollar price of the franc:
A) American exports to France will be cheaper in francs
B) American exports to France will be more expensive in francs
C) American imports from France will be more expensive in dollars
D) None of the above

Accepted Answer

The answer of Under a floating exchange rate system, if...

Question 16

A market-determined $\underline {  \text { increase }  }$ in the dollar price of the pound is associated with:
A) Revaluation of the dollar
B) Devaluation of the dollar
C) Appreciation of the dollar
D) Depreciation of the dollar

Accepted Answer

The answer of A market-determined \(\underline {  \text {...

Question 17

Given an initial equilibrium in the money market and foreign exchange market, suppose the Federal Reserve $\underline {  \text { decreases }  }$the money supply of the United States. Under a floating exchange rate system, the dollar would:
A) Appreciate in value relative to other currencies
B) Depreciate in value relative to other currencies
C) Be officially devalued by the government
D) Be officially revalued by the government

Accepted Answer

The answer of Given an initial equilibrium in the money...

Question 18

If the Japanese yen $\underline {  \text { appreciates }  }$ against other currencies in the exchange markets, this will:
A) Have no effect on the Japanese balance of trade
B) Tend to improve the Japanese balance of trade
C) Tend to worsen the Japanese balance of trade
D) None of the above

Accepted Answer

An appreciation in the Japanese yen makes Japanese exports more expensive and less competitive in international markets, while also making imports cheaper for Japanese consumers. This tends to worsen the Japanese balance of trade, as it leads to a decrease in exports and an increase in imports, causing a higher trade deficit.

Question 19

Assume that interest rates in London $\underline {  \text { rise }  }$relative to those in Switzerland. Under a floating exchange-rate system, one would expect the pound (relative to the franc) to:
A) Depreciate due to the increased demand for pounds
B) Depreciate due to the increased demand for francs
C) Appreciate due to the increased demand for francs
D) Appreciate due to the increased demand for pounds

Accepted Answer

The answer of Assume that interest rates in London \(\underline...

Question 20

Under a system of floating exchange rates, a U.S. trade $\underline {  \text { deficit }  }$ with Japan will cause:
A) A flow of gold from the United States to Japan
B) The U.S. government to ration yen to U.S. importers
C) An increase in the dollar price of yen
D) A decrease in the dollar price of yen

Accepted Answer

When the U.S. has a trade deficit with Japan, it means that more dollars are leaving the U.S. than yen are leaving Japan. This leads to an excess supply of dollars in the foreign exchange market, which causes the value of the dollar to decrease relative to the yen. Consequently, the dollar price of yen increases.

Quiz 15: Exchange-Rate Systems and Currency Crises

To temporarily offset a $\underline { \text { depreciation } }$ in the dollar's exchange value, the Federal Reserve could the U.S. money supply which would promote a (an) in U.S. interest rates and a (an) in investment flows to the United States.

Which of the following is $\underline { \text { not } }$ a potential $\underline { \text { disadvantage } }$ of freely floating exchange rates?

Under a floating exchange-rate system, if the U.S. dollar $\underline { \text { depreciates } }$ against the Swiss franc:

A market-determined $\underline { \text { decrease } }$ in the dollar price of the pound is associated with:

To temporarily offset an $\underline { \text { appreciation } }$ in the dollar's exchange value, the Federal Reserve could the U.S. money supply which would promote a (an) in U.S. interest rates and a in investment flows to the United States.

In a managed floating exchange-rate system, temporary stabilization of the dollar's exchange value requires the Federal Reserve to adopt a (an) monetary policy when the dollar is appreciating and a (an) policy when the dollar is depreciating.

A $\underline { \text { surplus } }$ nation can $\underline { \text { reduce } }$ its payments imbalance by:

A potential $\underline { \text { limitation } }$ of freely floating exchange rates is that:

If the Japanese yen $\underline { \text { depreciates } }$ against other currencies in the exchange markets, this will:

Proponents of freely floating exchange rates maintain that:

Under a floating exchange-rate system, which of the following best leads to a $\underline { \text { depreciation } }$ in the value of the Canadian dollar?

Suppose Sweden's inflation rate is $\underline { \text { less } }$ than that of its trading partner. Under a floating exchange rate system, Sweden would experience a:

A potential $\underline { \text { disadvantage } }$ of freely floating exchange rates is that there would:

The central bank of the United Kingdom could $\underline { \text { prevent } }$ the pound from $\underline { \text { appreciating } }$ by:

Under a floating exchange rate system, if there occurs a $\underline { \text { fall } }$ in the dollar price of the franc:

A market-determined $\underline { \text { increase } }$ in the dollar price of the pound is associated with:

Given an initial equilibrium in the money market and foreign exchange market, suppose the Federal Reserve $\underline { \text { decreases } }$ the money supply of the United States. Under a floating exchange rate system, the dollar would:

If the Japanese yen $\underline { \text { appreciates } }$ against other currencies in the exchange markets, this will:

Assume that interest rates in London $\underline { \text { rise } }$ relative to those in Switzerland. Under a floating exchange-rate system, one would expect the pound (relative to the franc) to:

Under a system of floating exchange rates, a U.S. trade $\underline { \text { deficit } }$ with Japan will cause:

Quiz 15: Exchange-Rate Systems and Currency Crises

To temporarily offset a depreciation ‾\underline { \text { depreciation } } depreciation ​ in the dollar's exchange value, the Federal Reserve could ____ the U.S. money supply which would promote a (an) ____ in U.S. interest rates and a (an) ____ in investment flows to the United States.

Which of the following is not ‾\underline { \text { not } } not ​ a potential disadvantage ‾\underline { \text { disadvantage } } disadvantage ​ of freely floating exchange rates?

Under a floating exchange-rate system, if the U.S. dollar depreciates ‾\underline { \text { depreciates } } depreciates ​ against the Swiss franc:

A market-determined decrease ‾\underline { \text { decrease } } decrease ​ in the dollar price of the pound is associated with:

To temporarily offset an appreciation ‾\underline { \text { appreciation } } appreciation ​ in the dollar's exchange value, the Federal Reserve could ____ the U.S. money supply which would promote a (an) ____ in U.S. interest rates and a ____ in investment flows to the United States.

In a managed floating exchange-rate system, temporary stabilization of the dollar's exchange value requires the Federal Reserve to adopt a (an) ____ monetary policy when the dollar is appreciating and a (an) ____ policy when the dollar is depreciating.

A surplus ‾\underline { \text { surplus } } surplus ​ nation can reduce ‾\underline { \text { reduce } } reduce ​ its payments imbalance by:

A potential limitation ‾\underline { \text { limitation } } limitation ​ of freely floating exchange rates is that:

If the Japanese yen depreciates ‾\underline { \text { depreciates } } depreciates ​ against other currencies in the exchange markets, this will:

Proponents of freely floating exchange rates maintain that:

Under a floating exchange-rate system, which of the following best leads to a depreciation ‾\underline { \text { depreciation } } depreciation ​ in the value of the Canadian dollar?

Suppose Sweden's inflation rate is less ‾\underline { \text { less } } less ​ than that of its trading partner. Under a floating exchange rate system, Sweden would experience a:

A potential disadvantage ‾\underline { \text { disadvantage } } disadvantage ​ of freely floating exchange rates is that there would:

The central bank of the United Kingdom could prevent ‾\underline { \text { prevent } } prevent ​ the pound from appreciating ‾\underline { \text { appreciating } } appreciating ​ by:

Under a floating exchange rate system, if there occurs a fall ‾\underline { \text { fall } } fall ​ in the dollar price of the franc:

A market-determined increase ‾\underline { \text { increase } } increase ​ in the dollar price of the pound is associated with:

Given an initial equilibrium in the money market and foreign exchange market, suppose the Federal Reserve decreases ‾\underline { \text { decreases } } decreases ​ the money supply of the United States. Under a floating exchange rate system, the dollar would:

If the Japanese yen appreciates ‾\underline { \text { appreciates } } appreciates ​ against other currencies in the exchange markets, this will:

Assume that interest rates in London rise ‾\underline { \text { rise } } rise ​ relative to those in Switzerland. Under a floating exchange-rate system, one would expect the pound (relative to the franc) to:

Under a system of floating exchange rates, a U.S. trade deficit ‾\underline { \text { deficit } } deficit ​ with Japan will cause: