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a.
Slovenia.
b.
the United Kingdom.
c.
Germany.
d.
France.
92. Which of the following is not true regarding Thailand before the Asian crisis?
a.
Thailand was one of the slowest growing countries.
b.
High levels of spending and low levels of saving placed upward pressure on prices of real estate, products, and
on Thailand’s local interest rate.
c.
Thailand’s baht was linked to the dollar prior to July 1997, which made Thailand an attractive site for foreign
investors.
d.
Thai banks provided many loans that were very risky in their attempt to make use of all of their funds.
e.
All of these are true.
93. Which of the following is not true regarding the eurozone?
a.
Members cannot set their own monetary policies.
b.
Members cannot apply their own fiscal policies.
c.
Members are subject to the monetary policy set by the European Central Bank.
d.
Its creation allowed for more comparable stock prices among its members.
94. Which of the following countries have not adopted the euro?
a.
Germany
b.
Italy
c.
Switzerland
d.
France
95. Assume that the dollar has been consistently depreciating over a long period. The Fed decides to counteract this
movement by intervening in the foreign exchange market using sterilized intervention. The Fed would:
a.
buy dollars with foreign currency and simultaneously sell Treasury securities for dollars.
b.
buy dollars with foreign currency and simultaneously buy Treasury securities with dollars.
c.
sell dollars for foreign currency and simultaneously sell Treasury securities for dollars.
d.
sell dollars for foreign currency and simultaneously buy Treasury securities with dollars.
e.
None of these are correct.
96. If the Fed desires to weaken the dollar without affecting the dollar money supply, it should:
a.
exchange dollars for foreign currencies, and sell some of its existing Treasury security holdings for dollars.
b.
exchange foreign currencies for dollars, and sell some of its existing Treasury security holdings for dollars.
c.
exchange dollars for foreign currencies, and buy existing Treasury securities with dollars.
d.
exchange foreign currencies for dollars, and buy existing Treasury securities with dollars.
97. A primary result of the Bretton Woods Agreement was:
a.
the establishment of the European Monetary System (EMS).
b.
establishing specific rules for when tariffs and quotas could be imposed by governments.
c.
establishing that exchange rates of most major currencies were to be allowed to fluctuate 1 percent above or
below their initially set values.
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d.
establishing that exchange rates of most major currencies were to be allowed to fluctuate freely without
boundaries (although the central banks did have the right to intervene when necessary).
98. The euro is the currency:
a.
adopted in all western European countries as of 1999.
b.
adopted in all eastern European countries as of 1999.
c.
adopted in all European countries as of 1999.
d.
None of these are correct.
99. Which of the following is true about the Asian crisis?
a.
It was preceded by several years of large capital inflows to the affected countries.
b.
It was preceded by a five-year recession in Asia.
c.
Interest rates in the affected countries declined during the crisis.
d.
Exchange rates of the affected countries were pegged to the Japanese yen to resolve the crisis.
100. A primary result of the Smithsonian Agreement was:
a.
the establishment of the European Monetary System (EMS).
b.
establishing that exchange rates of most major countries were to be allowed to fluctuate 2.25 percent above or
below their initially set values.
c.
establishing specific rules for when tariffs and quotas could be imposed by governments.
d.
establishing that exchange rates of most major currencies were to be allowed to fluctuate freely without
boundaries (although the central banks did have the right to intervene when necessary).
101. Assume that the dollar has been consistently appreciating over a long period. The Fed decides to counteract this
movement by intervening in the foreign exchange market using nonsterilized intervention. The Fed would:
a.
buy dollars with foreign currency and simultaneously sell Treasury securities for dollars.
b.
buy dollars with foreign currency and simultaneously buy Treasury securities with dollars.
c.
sell dollars for foreign currency and simultaneously sell Treasury securities for dollars.
d.
sell dollars for foreign currency and simultaneously buy Treasury securities with dollars.
e.
None of these are correct.
102. A strong dollar places ____ pressure on inflation, which in turn places ____ pressure on the dollar.
a.
upward; upward
b.
downward; upward
c.
upward; downward
d.
downward; downward
103. The currency of Country X is pegged to the currency of Country Y. Assume that Country Y’s currency depreciates
against the currency of Country Z. It is likely that Country X will export ____ to Country Z and import ____ from
Country Z.
a.
more; more
b.
less; less
c.
more; less
d.
less; more
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104. Which of the following is not a disadvantage of a freely floating exchange rate system?
a.
It can adversely affect a country that has high unemployment.
b.
It can adversely affect a country that has high inflation.
c.
The government may intervene to change the value of a given currency.
d.
The exchange rate risk is high and may be costly to manage.
105. Common reasons mentioned in the text for central bank intervention in the foreign exchange market include all of the
following except:
a.
to provide an alternative form of bank deposit insurance.
b.
to establish implicit exchange rate boundaries.
c.
to respond to temporary disturbances.
d.
to smooth exchange rate movements.
106. Which of the following is not true regarding government intervention?
a.
Under the direct method of intervention, an appreciation of the dollar would be accomplished by exchanging
dollars for foreign currencies.
b.
Under nonsterilized intervention, the Fed would intervene in the foreign exchange market without adjusting
the money supply.
c.
Under sterilized intervention, the Fed would intervene simultaneously in the foreign exchange and Treasury
markets.
d.
Under indirect intervention, the Fed would attempt to affect the dollar’s value by indirectly influencing the
factors that determine it, such as interest rates.
e.
All of these are true.
107. It has been argued that the exchange rate can be used as a policy tool. Assume that the U.S. government would like to
reduce unemployment. Which of the following is an appropriate action given this scenario?
a.
Weaken the dollar.
b.
Strengthen the dollar.
c.
Buy dollars with foreign currency in the foreign exchange market.
d.
Implement a tight monetary policy.
108. The risk-free interest rates among countries that have adopted the euro should:
a.
not necessarily be similar to risk-free rates in other countries.
b.
equal the U.S. risk-free rate.
c.
equal the risk-free rates in other European countries.
d.
equal the risk-free rates in Asian countries.
109. If the Fed ____ interest rates when inflationary expectations remain unchanged, the most likely result is that the
value of the dollar will ____ and the economy may ____.
a.
increases; appreciate; weaken
b.
decreases; appreciate; weaken
c.
increases; depreciate; strengthen
d.
decreases; appreciate; strengthen
110. Which of the following is not true regarding the Mexican peso crisis?
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a.
Mexico encouraged firms and consumers to buy an excessive amount of imports because the peso was
stronger than it should have been.
b.
Many speculators based in the United States speculated on the potential decline in the peso by investing their
funds in Mexico.
c.
In December 1994, the central bank of Mexico allowed the peso to float freely.
d.
The central bank of Mexico increased interest rates after the peso declined in value in order to prevent
investors from withdrawing their investments in Mexico’s debt securities.
e.
All of these are true.
111. To force the value of the pound to appreciate against the dollar, the Federal Reserve should:
a.
sell dollars for pounds in the foreign exchange market and the European Central Bank (ECB) should sell
dollars for pounds in the foreign exchange market.
b.
sell pounds for dollars in the foreign exchange market and the European Central Bank (ECB) should sell
dollars for pounds in the foreign exchange market.
c.
sell pounds for dollars in the foreign exchange market and the European Central Bank (ECB) should not
intervene.
d.
sell dollars for pounds in the foreign exchange market and the European Central Bank (ECB) should sell
pounds for dollars in the foreign exchange market.
112. Assume that Japan and the United States frequently trade with each other. Under a freely floating exchange rate
system, high inflation in the United States will place ____ pressure on the Japanese yen, ____ the amount of Japanese yen
available for sale, and result in ____ inflation in Japan.
a.
upward; reduce; unchanged
b.
upward; increase; higher
c.
downward; reduce; unchanged
d.
downward; increase; higher
113. The interest rate of a country with a currency board:
a.
is less stable than it would be without a currency board.
b.
is typically below the interest rate of the currency to which it is tied.
c.
will move in tandem with the interest rate of the currency to which it is tied.
d.
is completely independent of the interest rate of the currency to which it is tied.
114. To weaken the dollar using a sterilized intervention, the Fed will ____ U.S. dollars and simultaneously ____
Treasury securities.
a.
buy; sell
b.
sell; sell
c.
sell; buy
d.
buy; sell
115. If a speculator expects that the Fed will intervene heavily by exchanging dollars for Japanese yen in order to affect
the exchange rate, she would most likely ____ to capitalize on this intervention.
a.
purchase yen put options
b.
sell yen futures contracts
c.
purchase yen call options
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d.
buy U.S. Treasury bonds
116. A strong dollar places ____ pressure on U.S. inflation, which in turn places ____ pressure on U.S. interest rates,
which in turn places ____ pressure on U.S. bond prices.
a.
downward; upward; upward
b.
downward; downward; upward
c.
upward; upward; downward
d.
upward; downward; upward
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Answer Key
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103. c
104. c
105. a
106. a
107. a
108. a
109. a
110. b
111. a
112. a
113. c
114. b
115. c
116. b