Question 1

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 inflation. Which of the following is an appropriate action given this scenario?

Accepted Answer

A)   Sell dollars for foreign currency
B)   Buy dollars with foreign currency
C)   Lower interest rates
D)   None of the aboveE) B) and C)
F) A) and D)

Question 2

Assuming no credit risk, the interest rates among countries in the eurozone should be similar.

Accepted Answer

A) True 
 B)False

Question 3

The Bretton Woods Agreement called for the establishment of a single European currency.

Accepted Answer

A) True 
 B)False

Question 4

A primary result of the Smithsonian Agreement was:

Accepted Answer

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% 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) .E) A) and B)
F) A) and C)

Question 5

The European Central Bank is located in:

Accepted Answer

A)   London.
B)   Denmark.
C)   Luxembourg.
D)   Frankfurt.E) B) and D)
F) B) and C)

Question 6

Which of the following is true regarding the euro?

Accepted Answer

A)   Exchange rate risk between participating European currencies is completely eliminated, encouraging more trade and capital flows across European borders.
B)   It allows for more consistent economic conditions across countries.
C)   It prevents each country from conducting its own monetary policy.
D)   All of the above are true.E) C) and D)
F) A) and B)

Question 7

A weak dollar is normally expected to cause:

Accepted Answer

A)   high unemployment and high inflation in the U.S.
B)   high unemployment and low inflation in the U.S.
C)   low unemployment and low inflation in the U.S.
D)   low unemployment and high inflation in the U.S.E) C) and D)
F) All of the above

Question 8

A country with fixed exchange rates often faces constraints on growth.

Accepted Answer

A) True 
 B)False

Question 9

China is commonly criticized for keeping the yuan's value at superficially high levels.

Accepted Answer

A) True 
 B)False

Question 10

A major advantage of the euro is the complete elimination of exchange rate risk on transactions between participating European countries, which encourages more trade and capital flows within Europe.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is the most likely reason for revaluation of a currency?

Accepted Answer

A)   To reduce inflation.
B)   To stimulate the local economy.
C)   To increase the amount of exports.
D)   To increase balance-of-trade surplus.E) B) and C)
F) All of the above

Question 12

The exchange rate mechanism (ERM)  refers to the method of linking ____ currencies to each other within boundaries.

Accepted Answer

A)   Latin American
B)   European
C)   Asian
D)   North AmericanE) A) and B)
F) A) and C)

Question 13

The Asian crisis is generally believed to have started in Japan.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is not a reason for devaluation of a currency?

Accepted Answer

A)   high inflation.
B)   to reduce balance-of-trade deficit.
C)   to decrease the amount of imports.
D)   high unemployment.E) A) and D)
F) None of the above

Question 15

Which of the following is not true regarding the Mexican peso crisis?

Accepted Answer

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 U.S. speculated on the potential decline in the peso by investing their funds in Mexico.
C)   In December of 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 the above are true.F) C) and D)
G) All of the above

Question 16

In order to stimulate a stagnant economy, a government operating under a managed float may attempt to weaken its currency.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is true regarding the euro?

Accepted Answer

A)   Exchange rate risk between participating European currencies is completely eliminated, encouraging more trade and capital flows across European borders.
B)   It allows for more consistent economic conditions across countries.
C)   It prevents each country from conducting its own monetary policy.
D)   All of the above are true.E) A) and D)
F) A) and C)

Exam 6: Government Influence on Exchange Rates

China is commonly criticized for keeping the yuan's value at superficially high levels.

Correct Answer
verified

A weak dollar is normally expected to cause:

Correct Answer
verified

Which of the following is true regarding the euro?

Correct Answer
verified

The exchange rate mechanism (ERM) refers to the method of linking ____ currencies to each other within boundaries.

Correct Answer
verified

Assuming no credit risk, the interest rates among countries in the eurozone should be similar.

Correct Answer
verified

Which of the following is true regarding the euro?

Correct Answer
verified

A major advantage of the euro is the complete elimination of exchange rate risk on transactions between participating European countries, which encourages more trade and capital flows within Europe.

Correct Answer
verified

Which of the following is the most likely reason for revaluation of a currency?

Correct Answer
verified

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 inflation. Which of the following is an appropriate action given this scenario?

Correct Answer
verified

A primary result of the Smithsonian Agreement was:

Correct Answer
verified

The Asian crisis is generally believed to have started in Japan.

Correct Answer
verified

The Bretton Woods Agreement called for the establishment of a single European currency.

Correct Answer
verified

Which of the following is not a reason for devaluation of a currency?

Correct Answer
verified

In order to stimulate a stagnant economy, a government operating under a managed float may attempt to weaken its currency.

Correct Answer
verified

The European Central Bank is located in:

Correct Answer
verified

A country with fixed exchange rates often faces constraints on growth.

Correct Answer
verified

Which of the following is not true regarding the Mexican peso crisis?

Correct Answer
verified

Exam 6: Government Influence on Exchange Rates

China is commonly criticized for keeping the yuan's value at superficially high levels.

Correct AnswerverifiedShow Answer

A weak dollar is normally expected to cause:

Correct AnswerverifiedShow Answer

Which of the following is true regarding the euro?

Correct AnswerverifiedShow Answer

The exchange rate mechanism (ERM) refers to the method of linking ____ currencies to each other within boundaries.

Correct AnswerverifiedShow Answer

Assuming no credit risk, the interest rates among countries in the eurozone should be similar.

Correct AnswerverifiedShow Answer

Which of the following is true regarding the euro?

Correct AnswerverifiedShow Answer

A major advantage of the euro is the complete elimination of exchange rate risk on transactions between participating European countries, which encourages more trade and capital flows within Europe.

Correct AnswerverifiedShow Answer

Which of the following is the most likely reason for revaluation of a currency?

Correct AnswerverifiedShow Answer

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 inflation. Which of the following is an appropriate action given this scenario?

Correct AnswerverifiedShow Answer

A primary result of the Smithsonian Agreement was:

Correct AnswerverifiedShow Answer

The Asian crisis is generally believed to have started in Japan.

Correct AnswerverifiedShow Answer

The Bretton Woods Agreement called for the establishment of a single European currency.

Correct AnswerverifiedShow Answer

Which of the following is not a reason for devaluation of a currency?

Correct AnswerverifiedShow Answer

In order to stimulate a stagnant economy, a government operating under a managed float may attempt to weaken its currency.

Correct AnswerverifiedShow Answer

The European Central Bank is located in:

Correct AnswerverifiedShow Answer

A country with fixed exchange rates often faces constraints on growth.

Correct AnswerverifiedShow Answer

Which of the following is not true regarding the Mexican peso crisis?

Correct AnswerverifiedShow Answer

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