Q&A Hero

Q: The Bretton Woods agreement created the ________, which was given the task of promoting the growth of world trade by setting rules for the maintenance of fixed exchange rates and by making loans to countries that were experiencing balance of payments difficulties. A) IMF B) World Bank C) Central Settlements Bank D) Bank of International Settlements

Q: Under the Bretton Woods system, the organization assigned the task of making loans to countries that were experiencing balance of payments difficulties is known as the A) World Bank. B) International Development Association. C) International Monetary Fund. D) Federal Reserve System.

Q: The fixed exchange rate regime established at a meeting in New Hampshire in 1944 has been known as the A) General Agreement on Tariffs and Trade. B) Bretton Woods system. C) International Settlement Fund. D) Balance of Payments Compliance Accord.

Q: When gold production was low in the 1870s and 1880s, the money supply grew ________ causing ________. A) rapidly; inflation B) rapidly; disinflation C) slowly; deflation D) slowly; disinflation

Q: Under a gold standard in which one dollar could be turned in to the U.S. Treasury and exchanged for 1/20th of an ounce of gold and one German mark could be exchanged for 1/100th of an ounce of gold, an exchange rate of ________ marks to the dollar would stimulate a flow of gold from the United States to Germany. A) 7 B) 6 C) 5 D) 4

Q: Economists closely follow the current account balance because they believe it can provide information on the future movement of A) interest rates. B) gold flows. C) exchange rates. D) special drawing rights.

Q: Because it provides some indication of what is happening to U.S. claims on foreign wealth and the demand for imports and exports, the ________ is closely followed by economists wanting information on the future movement of exchange rates. A) trade balance B) capital account C) current account balance D) statistical discrepancy

Q: A current account surplus indicates that America is ________ its claims on foreign wealth, while a deficit indicates that this country is ________ its claims on foreign wealth. A) reducing; reducing B) reducing; increasing C) increasing; reducing D) increasing; increasing

Q: If the current account balance shows a surplus, and the capital account also shows a surplus, then the official reserve transactions balance A) must be positive. B) must be negative. C) must be zero. D) can either be positive, negative, or zero.

Q: The net amount of international reserves that move between governments to finance international transactions is called the ________ balance. A) capital account B) current account C) trade D) official reserve transactions

Q: Which of the following appears in the capital account part of the balance of payments? A) a gift to an American from his English aunt B) a purchase by the Honda corporation of a U.S. Treasury bill C) a purchase by the Bank of England of a U.S. Treasury bill D) income earned by the Honda corporation on its automobile plant in Ohio

Q: Capital ________ are American purchases of foreign assets, and capital ________ are foreign purchases of American assets. A) inflows; outflows B) inflows; inflows C) outflows; outflows D) outflows; inflows

Q: Of the following, the one that appears in the current account of the balance of payments is A) an Italian investor's purchase of IBM stock. B) income earned by U.S. subsidiaries of Barclay's Bank of London. C) a loan by a Swiss bank to an American corporation. D) a purchase of a British Treasury bond by the Fed.

Q: Which of the following does NOT appear in the current account part of the balance of payments? A) a loan of $1 million from Bank of America to Brazil B) foreign aid to El Salvador C) an Air France ticket bought by an American D) income earned by General Motors from its plants abroad

Q: The account that shows international transactions involving financial transactions (stocks, bonds, bank loans, etc.) is called the A) trade balance. B) current account. C) balance of payments. D) capital account.

Q: The account that shows international transactions involving currently produced goods and services is called the A) trade balance. B) current account. C) balance of payments. D) capital account.

Q: The difference between merchandise exports and imports is called the ________ balance. A) current account B) capital account C) official reserve transactions D) trade

Q: If the United States has a current account deficit with England of $1 million, and the Bank of England sells $1 million worth of pounds in the foreign exchange market, then England ________ $1 million of international reserves and its monetary base ________ by $1 million. A) gains; rises B) gains; falls C) loses; rises D) loses; falls

Q: Everything else held constant, if a central bank makes a sterilized sale of foreign assets, then the domestic currency will A) appreciate. B) depreciate. C) either appreciate, depreciate, or remain constant. D) not be affected.

Q: 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) causes the exchange rate to overshoot in the short run. B) causes the exchange rate to undershoot in the short run. C) causes the exchange rate to depreciate in the short run, but has no effect on the exchange rate in the long run. D) has no effect on the exchange rate.

Q: Everything else held constant, if a central bank makes a sterilized purchase of foreign assets, then the domestic currency will A) appreciate. B) depreciate. C) either appreciate, depreciate, or remain constant. D) not be affected.

Q: Everything else held constant, if a central bank makes an unsterilized ________ of foreign assets, then the domestic money supply will ________ and the domestic currency will depreciate. A) purchase; increase B) purchase; decrease C) sale; increase D) sale; decrease

Q: Everything else held constant, if a central bank makes an unsterilized ________ of foreign assets, then the domestic money supply will decrease and the domestic currency will ________. A) purchase; appreciate B) purchase; depreciate C) sale; appreciate D) sale; depreciate

Q: Everything else held constant, if a central bank makes an unsterilized sale of foreign assets, then the domestic money supply will ________ and the domestic currency will ________. A) increase; appreciate B) increase; depreciate C) decrease; appreciate D) decrease; depreciate

Q: Everything else held constant, if a central bank makes an unsterilized ________ of foreign assets, then the domestic money supply will ________ and the domestic currency will appreciate. A) purchase; increase B) purchase; decrease C) sale; increase D) sale; decrease

Q: Everything else held constant, if a central bank makes an unsterilized ________ of foreign assets, then the domestic money supply will increase and the domestic currency will ________. A) purchase; appreciate B) purchase; depreciate C) sale; appreciate D) sale; depreciate

Q: Everything else held constant, if a central bank makes an unsterilized purchase of foreign assets, then the domestic money supply will ________ and the domestic currency will ________. A) increase; appreciate B) increase; depreciate C) decrease; appreciate D) decrease; depreciate

Q: A foreign exchange intervention with an offsetting open market operation that leaves the monetary base unchanged is called A) an unsterilized foreign exchange intervention. B) a sterilized foreign exchange intervention. C) an exchange rate feedback rule. D) a money neutral foreign exchange intervention.

Q: When the central bank allows the purchase or sale of domestic currency to have an effect on the monetary base, it is called A) an unsterilized foreign exchange intervention. B) a sterilized foreign exchange intervention. C) an exchange rate feedback rule. D) a money neutral foreign exchange intervention.

Q: Suppose that the Bank of Japan buys yen-denominated assets with U.S. dollar assets. Everything else held constant, this transaction will cause ________ in the foreign assets held by the Federal Reserve and ________ in the U.S. monetary base. A) an increase; an increase B) an increase; a decrease C) a decrease; an increase D) a decrease; a decrease

Q: Suppose that the Bank of Japan buys U.S. dollar assets with yen-denominated assets. Everything else held constant, this transaction will cause ________ in the foreign assets held by the Federal Reserve and ________ in the U.S. monetary base. A) an increase; an increase B) an increase; a decrease C) a decrease; an increase D) a decrease; a decrease

Q: A central bank ________ of domestic currency and corresponding ________ of foreign assets in the foreign exchange market leads to an equal increase in its international reserves and the monetary base, everything else held constant. A) sale; purchase B) sale; sale C) purchase; sale D) purchase; purchase

Q: A central bank ________ of domestic currency and corresponding ________ of foreign assets in the foreign exchange market leads to an equal decline in its international reserves and the monetary base, everything else held constant. A) sale; purchase B) sale; sale C) purchase; sale D) purchase; purchase

Q: According to the interest parity condition, if the domestic interest rate is 10 percent and the foreign interest rate is 12 percent, then the expected ________ of the foreign currency must be ________ percent.A) appreciation; 4B) appreciation; 2C) depreciation; 2D) depreciation; 4

Q: According to the interest parity condition, if the domestic interest rate is 12 percent and the foreign interest rate is 10 percent, then the expected ________ of the foreign currency must be ________ percent. A. appreciation; 4 B. appreciation; 2 C. depreciation; 2 D. depreciation; 4

Q: In a world with few impediments to capital mobility, the domestic interest rate equals the sum of the foreign interest rate and the expected depreciation of the domestic currency, a situation known as the A. interest parity condition. B. purchasing power parity condition. C. exchange rate parity condition. D. foreign asset parity condition.

Q: The expected return on dollar deposits in terms of foreign currency can be written as the ________ of the interest rate on dollar deposits and the expected appreciation of the dollar. A. product B. ratio C. sum D. difference

Q: With a 10 percent interest rate on dollar deposits, and an expected appreciation of 7 percent over the coming year, the expected return on dollar deposits in terms of the dollar is A. 3 percent. B. 10 percent. C. 13.5 percent. D. 17 percent.

Q: With a 10 percent interest rate on dollar deposits, and an expected appreciation of 7 percent over the coming year, the expected return on dollar deposits in terms of the foreign currency is A. 3 percent. B. 10 percent. C. 13.5 percent. D. 17 percent.

Q: If the interest rate on euro-denominated assets is 13 percent and it is 15 percent on peso-denominated assets, and if the euro is expected to appreciate at a 4 percent rate, for Francois the Frenchman the expected rate of return on peso-denominated assets is A. 11 percent. B. 15 percent. C. 17 percent. D. 19 percent.

Q: If the interest rate on euro-denominated assets is 13 percent and it is 15 percent on peso-denominated assets, and if the euro is expected to appreciate at a 4 percent rate, for Manuel the Mexican the expected rate of return on euro-denominated assets is A. 11 percent. B. 13 percent. C. 17 percent. D. 19 percent.

Q: If the interest rate is 7 percent on euro-denominated assets and 5 percent on dollar-denominated assets, and if the dollar is expected to appreciate at a 4 percent rate, the expected return on ________-denominated assets in terms of ________ percent. A. dollar; dollars is 7 B. euro; dollars is 1 C. dollar; euros is 1 D. euro; euros is 7

Q: If the interest rate is 7 percent on euro-denominated assets and 5 percent on dollar-denominated assets, and if the dollar is expected to appreciate at a 4 percent rate, the expected return on ________-denominated assets in terms of ________ percent. A. dollar; euros is 3 B. euro; dollars is 1 C. dollar; euros is 9 D. euro; dollars is 11

Q: If the interest rate is 7 percent on euro-denominated assets and 5 percent on dollar-denominated assets, and if the dollar is expected to appreciate at a 4 percent rate, the expected return on ________-denominated assets in ________ percent. A. dollar; euros is 3 B. euro; dollars is 1 C. dollar; euros is 1 D. euro; dollars is 3

Q: If the interest rate is 7 percent on euro-denominated assets and 5 percent on dollar-denominated assets, and if the dollar is expected to appreciate at a 4 percent rate, for Francois the Frenchman the expected rate of return on dollar-denominated assets is A. 11 percent. B. 9 percent. C. 5 percent. D. 3 percent. E. 1 percent.

Q: The condition that states that the domestic interest rate equals the foreign interest rate minus the expected appreciation of the domestic currency is called A. the purchasing power parity condition. B. the interest parity condition. C. money neutrality. D. the theory of foreign capital mobility.

Q: Explain and show graphically the effect of an increase in the expected inflation rate on the equilibrium exchange rate, everything else held constant.

Q: Explain and show graphically the effect of an increase in the expected future exchange rate on the equilibrium exchange rate, everything else held constant.

Q: When the effects of the global financial crisis started to spread more quickly throughout the rest of the world, the U.S. dollar ________ because demand for U.S. assets ________. A. appreciated; increased B. depreciated; increased C. appreciated; decreased D. depreciated; decreased

Q: During the beginning on the global financial crisis in the United States when the effects of the crisis were mostly confined within the United States, the U. S. dollar ________ because demand for U.S. assets ________. A. appreciated; increased B. depreciated; increased C. appreciated; decreased D. depreciated; decreased

Q: Evidence from the United States during the period 1973-2002 indicates that the value of the dollar and the measure of the ________ interest rate rose and fell together. A. real B. nominal C. expected D. actual

Q: Suppose that the latest Consumer Price Index (CPI) release shows a higher inflation rate in the U.S. than was expected. Everything else held constant, the release of the CPI report would immediately cause the demand for U.S. assets to ________ and the U.S. dollar would ________. A. increase; appreciate B. increase; depreciate C. decrease; appreciate D. decrease; depreciate

Q: Suppose a report was released today that showed the Euro-Zone inflation rate is running above the European Central Bank's inflation rate target. This leads people to expect that the European Central Bank will enact contractionary policy in the near future. Everything else held constant, the release of this report would immediately cause the demand for U.S. assets to ________ and the U.S. dollar will ________. A. increase; appreciate B. increase; depreciate C. decrease; appreciate D. decrease; depreciate

Q: Suppose the Federal Reserve releases a policy statement today which leads people to believe that the Fed will be enacting expansionary monetary policy in the near future. Everything else held constant, the release of this statement would immediately cause the demand for U.S. assets to ________ and the U.S. dollar to ________. A. increase; appreciate B. decrease; appreciate C. increase; depreciate D. decrease; depreciate

Q: ________ in the expected future domestic exchange rate causes the demand for domestic assets to shift to the ________ and the domestic currency to depreciate, everything else held constant. A. An increase; right B. An increase; left C. A decrease; right D. A decrease; left

Q: ________ in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to depreciate, everything else held constant. A. An increase; increase B. An increase; decrease C. A decrease; increase D. A decrease; decrease

Q: ________ in the expected future domestic exchange rate causes the demand for domestic assets to shift to the ________ and the domestic currency to appreciate, everything else held constant. A. An increase; right B. An increase; left C. A decrease; right D. A decrease; left

Q: ________ in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to appreciate, everything else held constant. A. An increase; increase B. An increase; decrease C. A decrease; increase D. A decrease; decrease

Q: ________ in the expected future domestic exchange rate causes the demand for domestic assets to shift to the left and the domestic currency to ________, everything else held constant. A. An increase; appreciate B. An increase; depreciate C. A decrease; appreciate D. A decrease; depreciate

Q: ________ in the expected future domestic exchange rate causes the demand for domestic assets to decrease and the domestic currency to ________, everything else held constant. A. An increase; appreciate B. An increase; depreciate C. A decrease; appreciate D. A decrease; depreciate

Q: ________ in the expected future domestic exchange rate causes the demand for domestic assets to shift to the right and the domestic currency to ________, everything else held constant. A. An increase; appreciate B. An increase; depreciate C. A decrease; appreciate D. A decrease; depreciate

Q: ________ in the expected future domestic exchange rate causes the demand for domestic assets to increase and the domestic currency to ________, everything else held constant. A. An increase; appreciate B. An increase; depreciate C. A decrease; appreciate D. A decrease; depreciate

Q: A decrease in the expected future domestic exchange rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________, everything else held constant. A. right; appreciate B. right; depreciate C. left; appreciate D. left; depreciate

Q: A decrease in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant. A. increase; appreciate B. increase; depreciate C. decrease; appreciate D. decrease; depreciate

Q: An increase in the expected future domestic exchange rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________, everything else held constant. A. right; appreciate B. right; depreciate C. left; appreciate D. left; depreciate

Q: An increase in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant. A. increase; appreciate B. increase; depreciate C. decrease; appreciate D. decrease; depreciate

Q: Suppose that the European Central Bank conducts a main refinancing sale. Everything else held constant, this would cause the demand for U.S. assets to ________ and the U.S. dollar will ________. A. increase; appreciate B. increase; depreciate C. decrease; appreciate D. decrease; depreciate

Q: Suppose that the European Central Bank enacts expansionary policy. Everything else held constant, this will cause the demand for U.S. assets to ________ and the U.S. dollar to ________. A. increase; appreciate B. decrease; appreciate C. increase; depreciate D. decrease; depreciate

Q: ________ in the foreign interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to depreciate, everything else held constant. A. An increase; right B. An increase; left C. A decrease; right D. A decrease; left

Q: ________ in the foreign interest rate causes the demand for domestic assets to ________ and the domestic currency to depreciate, everything else held constant. A. An increase; increase B. An increase; decrease C. A decrease; increase D. A decrease; decrease

Q: ________ in the foreign interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to appreciate, everything else held constant. A. An increase; right B. An increase; left C. A decrease; right D. A decrease; left

Q: ________ in the foreign interest rate causes the demand for domestic assets to ________ and the domestic currency to appreciate, everything else held constant. A. An increase; increase B. An increase; decrease C. A decrease; increase D. A decrease; decrease

Q: ________ in the foreign interest rate causes the demand for domestic assets to shift to the left and the domestic currency to ________, everything else held constant. A. An increase; appreciate B. An increase; depreciate C. A decrease; appreciate D. A decrease; depreciate

Q: ________ in the foreign interest rate causes the demand for domestic assets to decrease and the domestic currency to ________, everything else held constant. A. An increase; appreciate B. An increase; depreciate C. A decrease; appreciate D. A decrease; depreciate

Q: ________ in the foreign interest rate causes the demand for domestic assets to shift to the right and the domestic currency to ________, everything else held constant. A. An increase; appreciate B. An increase; depreciate C. A decrease; appreciate D. A decrease; depreciate

Q: ________ in the foreign interest rate causes the demand for domestic assets to increase and the domestic currency to ________, everything else held constant. A. An increase; appreciate B. An increase; depreciate C. A decrease; appreciate D. A decrease; depreciate

Q: A decrease in the foreign interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________, everything else held constant. A. right; appreciate B. right; depreciate C. left; appreciate D. left; depreciate

Q: A decrease in the foreign interest rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant. A. increase; appreciate B. increase; depreciate C. decrease; appreciate D. decrease; depreciate

Q: An increase in the foreign interest rate causes the demand for domestic assets to shift to the ________ and the domestic currency to ________, everything else held constant. A. right; appreciate B. right; depreciate C. left; appreciate D. left; depreciate

Q: An increase in the foreign interest rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant. A. increase; appreciate B. increase; depreciate C. decrease; appreciate D. decrease; depreciate