Question 1

Under a fixed exchange rate regime, if a country has an overvalued exchange rate, then its central bank's attempt to keep its currency from ________ will result in a ________ of international reserves.

Accepted Answer

If a country has an overvalued exchange rate, its central bank will need to sell its own currency and buy foreign currency to maintain the pegged exchange rate. This leads to an outflow of foreign reserves, resulting in a loss of international reserves. Therefore, the answer is B) depreciating; loss.

Question 2

Under a fixed exchange rate regime, if a country has an ________ exchange rate, then its central bank's attempt to keep its currency from appreciating will result in a ________ of international reserves.

Accepted Answer

Under a fixed exchange rate regime, if a country has an undervalued exchange rate, its central bank will buy its own currency to prevent it from appreciating, which leads to a gain in international reserves as it sells foreign currency to buy local currency.

Question 3

Under a fixed exchange rate regime, a central bank that does not want to acquire international reserves to keep its currency from ________ will decide to ________ its currency.

Accepted Answer

The answer of Under a fixed exchange rate regime, a...

Question 4

When the domestic currency is initially undervalued in a fixed exchange rate regime, the central bank must intervene in the foreign exchange market to ________ the domestic currency, thereby allowing the money supply to ________.

Accepted Answer

The answer of When the domestic currency is initially undervalued...

Question 5

Under a fixed exchange rate regime, if a central bank must intervene to purchase the domestic currency by selling foreign assets, then, like an open market sale, this action ________ the monetary base and the money supply, causing the interest rate on domestic assets to ________.

Accepted Answer

When a central bank intervenes to purchase the domestic currency by selling foreign assets under a fixed exchange rate regime, it effectively reduces the monetary base and the money supply, similar to an open market sale. This reduction in the money supply causes the interest rate on domestic assets to rise.

Question 6

Under a fixed exchange rate system, countries that ran large, persistent balance of payments surpluses would ________ international reserves, thereby pressuring them into ________ their exchange rate.

Accepted Answer

Under a fixed exchange rate system, a country that runs a persistent balance of payments surplus would gain international reserves, which would place upward pressure on its currency value. As a result, the country may be forced to revalue its currency in order to maintain the fixed exchange rate.

Question 7

Under a fixed exchange rate regime, if the domestic currency is initially ________, that is, ________ par, the central bank must intervene to purchase the domestic currency by selling foreign assets.

Accepted Answer

The answer of Under a fixed exchange rate regime, if...

Question 8

Under the Bretton Woods system, when a country adopted an expansionary monetary policy, thereby causing a balance of payments ________, the country would eventually be forced to implement ________ monetary policy.

Accepted Answer

Under the Bretton Woods system, if a country adopted an expansionary monetary policy, causing a balance of payments deficit, its currency would be under pressure to depreciate. To maintain its exchange rate peg, the government would have to sell its foreign reserves to buy its currency, which reduces its money supply. Eventually, this would lead to deflationary pressures in the country, and the government would have to implement a contractionary monetary policy to curb the inflation. Therefore, when a country adopted an expansionary monetary policy, causing a balance of payments deficit, the country would eventually be forced to implement a contractionary monetary policy to maintain its exchange rate peg.

Question 9

Under a fixed exchange rate regime, if a country has an ________ exchange rate, then its central bank's attempt to keep its currency from depreciating will result in a ________ of international reserves.

Accepted Answer

Under a fixed exchange rate regime, if a country's exchange rate is overvalued, its central bank's attempt to keep its currency from depreciating will result in a loss of international reserves. This is because the central bank will have to sell its foreign currency reserves to buy its own currency, as there is excess demand for its currency due to it being overvalued. As a result, the country's international reserves will decrease.

Question 10

Under a fixed exchange rate system, countries that ran large, persistent balance of payments deficits would ________ international reserves, thereby pressuring them into ________ their exchange rate.

Accepted Answer

Under a fixed exchange rate system, countries that run large, persistent balance of payments deficits would lose international reserves, leading to pressure to devalue their exchange rate in order to make their export prices cheaper and their import prices more expensive. This would help correct the trade imbalance by making exports more competitive and imports less attractive.

Question 11

Under a fixed exchange rate regime, if the domestic currency is initially overvalued, that is, below par, the central bank must intervene to purchase the ________ currency by selling ________ assets.

Accepted Answer

The answer of Under a fixed exchange rate regime, if...

Question 12

Under a fixed exchange rate regime, if a central bank must intervene to purchase the ________ currency by selling ________ assets, then, like an open market sale, this action reduces the monetary base and the money supply, causing the interest rate on domestic assets to rise.

Accepted Answer

When a central bank intervenes under a fixed exchange rate regime to purchase the domestic currency, it sells foreign assets. This action is akin to an open market sale, reducing the monetary base and the money supply, which in turn causes the interest rate on domestic assets to rise.

Question 13

Under a fixed exchange rate regime, if a country's central bank runs out of international reserves, it cannot keep its currency from ________.

Accepted Answer

Under a fixed exchange rate regime, the central bank of a country is committed to maintaining the value of its currency against a fixed anchor currency. If the central bank runs out of international reserves, it cannot intervene in the foreign exchange market to buy its own currency and keep it from depreciating. This is because it needs foreign currency reserves to buy its own currency and support its value. Therefore, if the central bank runs out of reserves, the currency will start to depreciate as demand for it falls relative to supply.

Question 14

Because the United States was the reserve-currency country under the Bretton Woods system, it could run large balance of payments ________ without ________ significant amounts of international reserves.

Accepted Answer

As the reserve-currency country, the United States was able to run large balance of payments deficits without losing significant amounts of international reserves.

Question 15

Under a fixed exchange rate regime, a country that depletes its international reserves in an attempt to keep its currency from ________ will be forced to ________ its currency.

Accepted Answer

Under a fixed exchange rate regime, a country commits to maintaining a specific exchange rate between its currency and another currency (or a basket of currencies). If a country's foreign exchange reserves are depleted while trying to maintain the exchange rate, it leads to increased demand for the domestic currency, which results in a shortage of supply. This shortage puts upward pressure on the domestic currency, making it more valuable. However, since the country has committed to a fixed exchange rate, it cannot allow its currency to appreciate beyond the established rate. Therefore, to maintain the pegged rate, the country will be forced to devalue its currency, making it less valuable. Thus, if a country depletes its international reserves to keep its currency from depreciating, it will be forced to devalue its currency.

Question 16

To keep from running out of international reserves under the Bretton Woods system, a country had to implement ________ monetary policy to ________ its currency.

Accepted Answer

Under the Bretton Woods system, if a country was running out of international reserves, it needed to implement contractionary monetary policy. This policy would reduce the money supply, increase interest rates, and as a result, strengthen the country's currency by making it more attractive to foreign investors.

Question 17

Under a fixed exchange rate regime, if a country has an undervalued exchange rate, then its central bank's attempt to keep its currency from ________ will result in a ________ of international reserves.

Accepted Answer

The answer of Under a fixed exchange rate regime, if...

Question 18

Under a fixed exchange rate regime, if the domestic currency is initially undervalued, that is, above par, the central bank must intervene to sell the ________ currency by purchasing ________ assets.

Accepted Answer

If the domestic currency is initially undervalued, it means that it is trading at a higher rate than its real value. This would make foreign currencies cheaper and attractive to buyers, leading to an increase in demand for them. To maintain the fixed exchange rate, the central bank must counteract this increase in demand by selling its own currency and buying foreign currency. Therefore, the central bank must intervene to sell the domestic currency by purchasing foreign assets.

Question 19

A balance of payments ________ is associated with a loss of international reserves, while a balance of payments ________ is associated with a gain.

Accepted Answer

A balance of payments deficit means that a country is spending more on imports and foreign investments than it is earning through exports and foreign investments. This results in a net outflow of currency from the country, leading to a loss of international reserves. On the other hand, a balance of payments surplus means that a country is earning more through exports and foreign investments than it is spending on imports and foreign investments, resulting in a net inflow of currency and a gain in international reserves. Therefore, the correct answer is (C) deficit; surplus.

Question 20

When the domestic currency is initially overvalued in a fixed exchange rate regime, the central bank must intervene in the foreign exchange market to ________ the domestic currency, thereby allowing the money supply to ________.

Accepted Answer

The answer of When the domestic currency is initially overvalued...

Quiz 19: The International Financial System

Under a fixed exchange rate regime, if a country has an overvalued exchange rate, then its central bank's attempt to keep its currency from will result in a of international reserves.

Under a fixed exchange rate regime, if a country has an exchange rate, then its central bank's attempt to keep its currency from appreciating will result in a of international reserves.

Under a fixed exchange rate regime, a central bank that does not want to acquire international reserves to keep its currency from will decide to its currency.

When the domestic currency is initially undervalued in a fixed exchange rate regime, the central bank must intervene in the foreign exchange market to the domestic currency, thereby allowing the money supply to .

Under a fixed exchange rate regime, if a central bank must intervene to purchase the domestic currency by selling foreign assets, then, like an open market sale, this action the monetary base and the money supply, causing the interest rate on domestic assets to .

Under a fixed exchange rate system, countries that ran large, persistent balance of payments surpluses would international reserves, thereby pressuring them into their exchange rate.

Under a fixed exchange rate regime, if the domestic currency is initially , that is, par, the central bank must intervene to purchase the domestic currency by selling foreign assets.

Under the Bretton Woods system, when a country adopted an expansionary monetary policy, thereby causing a balance of payments , the country would eventually be forced to implement monetary policy.

Under a fixed exchange rate regime, if a country has an exchange rate, then its central bank's attempt to keep its currency from depreciating will result in a of international reserves.

Under a fixed exchange rate system, countries that ran large, persistent balance of payments deficits would international reserves, thereby pressuring them into their exchange rate.

Under a fixed exchange rate regime, if the domestic currency is initially overvalued, that is, below par, the central bank must intervene to purchase the currency by selling assets.

Under a fixed exchange rate regime, if a central bank must intervene to purchase the currency by selling assets, then, like an open market sale, this action reduces the monetary base and the money supply, causing the interest rate on domestic assets to rise.

Under a fixed exchange rate regime, if a country's central bank runs out of international reserves, it cannot keep its currency from ________.

Because the United States was the reserve-currency country under the Bretton Woods system, it could run large balance of payments without significant amounts of international reserves.

Under a fixed exchange rate regime, a country that depletes its international reserves in an attempt to keep its currency from will be forced to its currency.

To keep from running out of international reserves under the Bretton Woods system, a country had to implement monetary policy to its currency.

Under a fixed exchange rate regime, if a country has an undervalued exchange rate, then its central bank's attempt to keep its currency from will result in a of international reserves.

Under a fixed exchange rate regime, if the domestic currency is initially undervalued, that is, above par, the central bank must intervene to sell the currency by purchasing assets.

A balance of payments is associated with a loss of international reserves, while a balance of payments is associated with a gain.

When the domestic currency is initially overvalued in a fixed exchange rate regime, the central bank must intervene in the foreign exchange market to the domestic currency, thereby allowing the money supply to .