Question 1

A central bank sale of ________ to purchase ________ in the foreign exchange market results in an equal rise in its international reserves and the monetary base.

Accepted Answer

C

Question 2

An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to

Accepted Answer

When domestic currency is sold to purchase foreign assets, the transaction increases the supply of domestic currency in the market, leading to an increase in the money supply (option B). Additionally, since the demand for the domestic currency decreases while the supply increases, the exchange rate appreciates or strengthens. This means that the domestic currency buys more foreign currency, and the foreign currency buys relatively fewer units of domestic currency. This purchase of foreign assets also adds to the country's international reserves, as it holds foreign assets (option A). Therefore, the correct answer is E, only options A and B of the above.

Question 3

A central bank ________ of domestic currency and corresponding ________ of foreign assets in the foreign exchange market leads to an equal ________ in its international reserves and the monetary base.

Accepted Answer

D

Question 4

A Federal Reserve decision to sell dollars in order to buy foreign assets in the foreign exchange market has the same effect as an open market ________ of bonds to ________ the monetary base and the money supply.

Accepted Answer

The answer of A Federal Reserve decision to sell dollars...

Question 5

A central bank ________ of domestic currency and corresponding ________ of foreign assets in the foreign exchange market leads to an equal ________ in its international reserves and the monetary base.

Accepted Answer

The answer of A central bank ________ of domestic currency...

Question 6

The current account balance plus the capital account balance equals

Accepted Answer

The current account balance measures the trade in goods and services, while the capital account balance measures the financial transactions, such as investments and loans, between countries. Therefore, the sum of these two balances represents the net change in a country's international reserves held by the government. Option A is incorrect because exchange market intervention is not directly related to the balance of payments. Option B is incorrect because it only refers to the trade balance, which is only a part of the current account balance.

Question 7

Which of the following statements is correct?

Accepted Answer

The balance of payments identity states that the current account balance plus the capital account balance equals the net change in government international reserves.

Question 8

An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to

Accepted Answer

The answer of An unsterilized intervention in which domestic currency...

Question 9

Because sterilized interventions mean offsetting open market operations, there is no impact on the monetary base and the money supply, and therefore a sterilized intervention

Accepted Answer

The sterilized intervention does not affect the monetary base and the money supply, and hence does not impact the exchange rate in the short or long run. Therefore, it has no effect on the exchange rate.

Question 10

A current account ________ indicates that the United States is ________ its claims on foreign wealth.

Accepted Answer

The answer of A current account ________ indicates that the...

Question 11

A central bank sale of ________ to purchase ________ in the foreign exchange market results in an equal decline in its international reserves and the monetary base.

Accepted Answer

When a central bank sells foreign assets to purchase domestic currency, it decreases its international reserves (foreign assets) and the monetary base (domestic currency) by an equal amount, resulting in a balance sheet adjustment. Therefore, option A, i.e. a central bank sale of foreign assets to purchase domestic currency, is the correct answer.

Question 12

A foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called

Accepted Answer

A sterilized foreign exchange intervention involves the purchase or sale of foreign currency by a central bank, which is then offset by an open market operation, such as the sale or purchase of government securities, to maintain the same level of the monetary base. This type of intervention is meant to influence the exchange rate without affecting the domestic money supply.

Question 13

If the current account balance shows a surplus, and capital account receipts exceed capital account payments, then the net change in government international reserves must be ________, indicating a(n)________ in U.S. international reserves.

Accepted Answer

A surplus in the current account means that a country is exporting more than it is importing, resulting in an inflow of foreign exchange. If capital account receipts exceed capital account payments, then there is a further inflow of foreign exchange. This means there will be an increase in government international reserves, indicating a positive net change.

Question 14

When the central bank allows the purchase or sale of domestic currency to have an effect on the monetary base, it is called

Accepted Answer

An unsterilized foreign exchange intervention occurs when the central bank purchases or sells domestic currency without taking action to offset the effect on the monetary base. This can lead to changes in the money supply and interest rates in the domestic economy. In contrast, a sterilized foreign exchange intervention involves the central bank taking offsetting actions to keep the monetary base constant. The other options, exchange rate feedback rule and money-neutral foreign exchange intervention, do not accurately describe the situation described in the question.

Question 15

Because sterilized interventions mean offsetting open market operations,

Accepted Answer

The answer of Because sterilized interventions mean offsetting open market...

Question 16

The difference between merchandise exports and imports is called the

Accepted Answer

The difference between merchandise exports and imports is called the trade balance. The current account balance refers to the balance of trade in goods and services, while the capital account balance refers to the movement of financial capital. The balance of payments is a record of all monetary transactions between a country and the rest of the world, including trade and capital flows.

Question 17

Holding other factors constant, which of the following would increase the size of the U.S. current account deficit?

Accepted Answer

Increasing travel by American college students in Europe would increase the U.S. current account deficit because it involves spending U.S. dollars abroad, which counts as an import in the current account.

Question 18

A Federal Reserve decision to purchase dollars by selling foreign assets in the foreign exchange market has the same effect as an open market ________ of bonds to ________ the monetary base and the money supply.

Accepted Answer

When the Federal Reserve sells foreign assets in the foreign exchange market, it increases the supply of foreign currency and decreases the supply of dollars. This action results in a decrease in the monetary base and money supply. An open market sale of bonds also decreases the monetary base and money supply, making option A the correct answer.

Question 19

Holding other factors constant, which of the following would decrease the size of the U.S. current account deficit?

Accepted Answer

An increase in the amount of goods sold to foreigners would increase exports, which would decrease the current account deficit. Choice A and B would increase imports, which would increase the current account deficit.

Question 20

A current account ________ indicates that the United States is ________ its claims on foreign wealth.

Accepted Answer

A current account surplus indicates that a country is exporting more than it is importing, which means it is increasing its claims on foreign wealth through earning more from exports than it spends on imports.

Quiz 16: The International Financial System

A central bank sale of to purchase in the foreign exchange market results in an equal rise in its international reserves and the monetary base.

An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to

A central bank of domestic currency and corresponding of foreign assets in the foreign exchange market leads to an equal in its international reserves and the monetary base.

A Federal Reserve decision to sell dollars in order to buy foreign assets in the foreign exchange market has the same effect as an open market of bonds to the monetary base and the money supply.

A central bank of domestic currency and corresponding of foreign assets in the foreign exchange market leads to an equal in its international reserves and the monetary base.

The current account balance plus the capital account balance equals

Which of the following statements is correct?

An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to

Because sterilized interventions mean offsetting open market operations, there is no impact on the monetary base and the money supply, and therefore a sterilized intervention

A current account indicates that the United States is its claims on foreign wealth.

A central bank sale of to purchase in the foreign exchange market results in an equal decline in its international reserves and the monetary base.

A foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called

If the current account balance shows a surplus, and capital account receipts exceed capital account payments, then the net change in government international reserves must be , indicating a(n) in U.S. international reserves.

When the central bank allows the purchase or sale of domestic currency to have an effect on the monetary base, it is called

Because sterilized interventions mean offsetting open market operations,

The difference between merchandise exports and imports is called the

Holding other factors constant, which of the following would increase the size of the U.S. current account deficit?

A Federal Reserve decision to purchase dollars by selling foreign assets in the foreign exchange market has the same effect as an open market of bonds to the monetary base and the money supply.

Holding other factors constant, which of the following would decrease the size of the U.S. current account deficit?

A current account indicates that the United States is its claims on foreign wealth.

Quiz 16: The International Financial System

A central bank sale of ________ to purchase ________ in the foreign exchange market results in an equal rise in its international reserves and the monetary base.

An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to

A central bank ________ of domestic currency and corresponding ________ of foreign assets in the foreign exchange market leads to an equal ________ in its international reserves and the monetary base.

A Federal Reserve decision to sell dollars in order to buy foreign assets in the foreign exchange market has the same effect as an open market ________ of bonds to ________ the monetary base and the money supply.

A central bank ________ of domestic currency and corresponding ________ of foreign assets in the foreign exchange market leads to an equal ________ in its international reserves and the monetary base.

The current account balance plus the capital account balance equals

Which of the following statements is correct?

An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to

Because sterilized interventions mean offsetting open market operations, there is no impact on the monetary base and the money supply, and therefore a sterilized intervention

A current account ________ indicates that the United States is ________ its claims on foreign wealth.

A central bank sale of ________ to purchase ________ in the foreign exchange market results in an equal decline in its international reserves and the monetary base.

A foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called

If the current account balance shows a surplus, and capital account receipts exceed capital account payments, then the net change in government international reserves must be ________, indicating a(n) ________ in U.S. international reserves.

When the central bank allows the purchase or sale of domestic currency to have an effect on the monetary base, it is called

Because sterilized interventions mean offsetting open market operations,

The difference between merchandise exports and imports is called the

Holding other factors constant, which of the following would increase the size of the U.S. current account deficit?

A Federal Reserve decision to purchase dollars by selling foreign assets in the foreign exchange market has the same effect as an open market ________ of bonds to ________ the monetary base and the money supply.

Holding other factors constant, which of the following would decrease the size of the U.S. current account deficit?

A current account ________ indicates that the United States is ________ its claims on foreign wealth.

A central bank sale of to purchase in the foreign exchange market results in an equal rise in its international reserves and the monetary base.

A central bank of domestic currency and corresponding of foreign assets in the foreign exchange market leads to an equal in its international reserves and the monetary base.

A Federal Reserve decision to sell dollars in order to buy foreign assets in the foreign exchange market has the same effect as an open market of bonds to the monetary base and the money supply.

A central bank of domestic currency and corresponding of foreign assets in the foreign exchange market leads to an equal in its international reserves and the monetary base.

A current account indicates that the United States is its claims on foreign wealth.

A central bank sale of to purchase in the foreign exchange market results in an equal decline in its international reserves and the monetary base.

If the current account balance shows a surplus, and capital account receipts exceed capital account payments, then the net change in government international reserves must be , indicating a(n) in U.S. international reserves.

A Federal Reserve decision to purchase dollars by selling foreign assets in the foreign exchange market has the same effect as an open market of bonds to the monetary base and the money supply.

A current account indicates that the United States is its claims on foreign wealth.