1) bank claims and liabilities, security purchases, direct investments are examples of
items found in the capital account.
2) according to the monetary approach, a balance-of-payments disequilibrium is the
result of an imbalance in a countrys money supply and money demand.
3) if citi in new york has a buy rate of $0.0127 per yen and sumitomo bank in tokyo has
a buy rate of $0.0157 per yen, an arbitrager could profit by buying yen in tokyo and
simultaneously sell them in new york.
4) with perfect substitutability and perfect capital mobility, the domestic interest rate is
equal to the foreign interest rate.
5) seigniorage is the system where the dominant money producer limits the supply of
money to leverage foreign currencies.
6) bid price is the price at which a bank is ready to buy a foreign currency and ask price
is the price at which a bank is ready to sell a foreign currency.
7) the factor that shifts the bp curve is a change in perception of asset substitutability.
8) the rapid increase of capital inflow has the potential to harm the economy.
9) relative ppp indicates that
a.the same goods are sold for the same price internationally
b.the exchange rate between two countries is equal to the ratio of their price indexes
c.the percentage change in the exchange rate is equal to the inflation differential
between two countries
d.the inflation differential between two countries is equal to the forward premium
10) suppose the exchange rate between the u.s. dollar and the japanese yen is initially
90 yen per dollar. according to relative purchasing-power parity, if the price of traded
goods rises by 10 percent in the united states and remains constant in japan, the
exchange rate will become:
a.72 yen per dollar
b.81 yen per dollar
c.99 yen per dollar
d.108 yen per dollar
11) a change in the monetary policy shifts the:
a.is curve
b.lm curve
c.bp curve
d.none of the above
12) in the ________, changes in exchange rates occur because of changes in tastes or
technology and are part of the adjustment to a shock to the world economy.
a.balance of payments approach
b.equilibrium approach
c.news approach
d.exchange rate approach
13) which of the following is not the root cause of the 1997 asian financial crisis?
a.a sudden capital flight
b.chronic trade surplus in asian countries before the crisis year
c.close relations between business, banks, and government agencies, which led to risky
lending decisions
d.a fixed exchange rate system
14) assume floating exchange rates. suppose there are a 5% growth in u.s output and the
fed increases in u.s. money supply by 5%. then, which of the following will offset these
changes?
a.10% increase in exchange rate
b.10% decrease in exchange rate
c.10% increase in the foreign inflation
d.the two changes offset each other
15) when a country moves from segmented capital market to globalized capital market,
a firm located in this country can achieve:
a.lower cost of capital
b.greater availability of capital
c.lower risk premium on domestic assets
d.all of the above are correct
16) international banking facilities may make loans and deposits to only:
a.u.s. residents and other ibfs
b.ibfs only
c.both u.s. residents and non-residents
d.non-residents and other ibfs
17) what exchange rate system allows for periodic intervention without fixing to any
other foreign currency?
a.free floating
b.horizontal band
c.crawling peg
d.dollarization
18) to derive the monetary approach, we need money demand equals to money supply
and:
a.leakages equal injections
b.absolute purchasing power parity to hold
c.covered interest parity to hold
d.all of the above are correct
19) libor is set daily by the british bankers association for:
a.domestic banks in london only
b.use by eurobanks only
c.the british pound only
d.ten major currencies