Question 1

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

Since sterilized interventions do not impact the monetary base or money supply, they do not have any significant impact on the exchange rate in either the short or long run. Therefore, the correct answer is D, which states that sterilized interventions have no effect on the exchange rate.

Question 2

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 3

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

A central bank sale of foreign assets to purchase domestic currency in the foreign exchange market results in an equal decline in its international reserves (because it is using those reserves to make the purchase) and the monetary base (because it is effectively removing domestic currency from circulation, which reduces the amount of money available in the economy).

Question 4

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 and a greater amount of capital account receipts than payments both result in an increase in international reserves. Therefore, the net change in government international reserves must be positive, indicating an increase in U.S. international reserves.

Question 5

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

Accepted Answer

Selling domestic currency to purchase foreign assets would lead to an increase in international reserves, as foreign assets are purchased. Additionally, this intervention leads to an increase in the money supply, as the seller of the domestic currency would receive payment in another currency, which would be converted back to the domestic currency. However, this intervention would lead to an appreciation in the domestic currency, making exports more expensive and potentially harming the economy's competitiveness.

Question 6

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 measures the balance of trade and net income and transfers, while the capital account balance measures the balance of financial flows. The balance of payments combines both the current and capital account balances.

Question 7

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 and decrease imports, leading to a decrease in the current account deficit. Options A and B would increase imports, leading to an increase in the current account deficit.

Question 8

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 offsetting the impact on the monetary base through open market operations, which leaves the overall money supply unchanged. This is in contrast to an unsterilized intervention, which directly impacts the money supply, and a money-neutral intervention, which does not involve any offsetting action. The exchange rate feedback rule is a separate concept that refers to a central bank using the exchange rate as a signal for its monetary policy decisions.

Question 9

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.

Question 10

The current account balance plus the capital account balance equals

Accepted Answer

The current account balance represents the balance of trade in goods and services, while the capital account balance represents the flow of financial instruments between countries. When these two balances are added together, it gives the overall balance of payments, which is equal to the net change in government international reserves. Unsterilized exchange market intervention may or may not factor into these balances, depending on the specific circumstances. Therefore, choices A and D are not accurate.

Question 11

Because sterilized interventions mean offsetting open market operations,

Accepted Answer

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

Question 12

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

When the central bank allows the purchase or sale of domestic currency to have an effect on the monetary base, it is an unsterilized foreign exchange intervention, because it involves changing the domestic money supply through the exchange of domestic currency for foreign currency without offsetting the impact on the monetary base through other financial instruments. A sterilized foreign exchange intervention, on the other hand, involves offsetting the impact on the monetary base by buying or selling other assets, such as government bonds. An exchange rate feedback rule is a policy that adjusts the central bank's intervention in foreign exchange markets based on changes in the exchange rate. A money-neutral foreign exchange intervention is a policy that aims to have no effect on the money supply or interest rates.

Question 13

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

Accepted Answer

The answer of Holding other factors constant, which of the...

Question 14

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 15

Which of the following statements is correct?

Accepted Answer

The answer of Which of the following statements is correct?
...

Question 16

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 17

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 18

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 19

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 20

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...

Quiz 16: The International Financial System

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 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 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.

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

The difference between merchandise exports and imports is called the

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

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

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

The current account balance plus the capital account balance equals

Because sterilized interventions mean offsetting open market operations,

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

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

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.

Which of the following statements is correct?

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 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 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.

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

Quiz 16: The International Financial System

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 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 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.

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

The difference between merchandise exports and imports is called the

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

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

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

The current account balance plus the capital account balance equals

Because sterilized interventions mean offsetting open market operations,

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

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

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.

Which of the following statements is correct?

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 ________ 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 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.

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

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

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 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 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.