WorksheetsChapter 06: Government Influence on Exchange Rates
Total questions: 20
Worksheet time: 40mins
To force the value of the pound to appreciate against the dollar, the Federal Reserve should:
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.
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.
sell pounds for dollars in the foreign exchange market and the European Central Bank (ECB) should not intervene.
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.
A weak dollar is normally expected to cause:
high unemployment and high inflation in the U.S.
high unemployment and low inflation in the U.S.
low unemployment and low inflation in the U.S.
low unemployment and high inflation in the U.S.
To force the value of the British pound to depreciate against the dollar, the Federal Reserve should
sell dollars for pounds in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market.
sell pounds for dollars in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market.
sell pounds for dollars in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market.
sell dollars for pounds in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market.
Consider two countries that trade with each other, called X and Y. According to the text, inflation in Country X will have a greater impact on inflation in Country Y under the ____ system. Now, consider two other countries that trade with each other, called A and B. Unemployment in Country A will have a greater impact on unemployment in Country B under the ____ system.
floating rate; fixed rate
floating rate; floating rate
fixed rate; fixed rate
fixed rate; floating rate
A primary result of the Bretton Woods Agreement was
the establishment of the European Monetary System (EMS).
establishing specific rules for when tariffs and quotas could be imposed by governments.
establishing that exchange rates of most major currencies were to be allowed to fluctuate 1% above or below their initially set values.
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).
Under a fixed exchange rate system
a foreign exchange market does not exist.
central bank intervention in the foreign exchange market is not necessary.
central bank intervention in the foreign exchange market is often necessary.
central bank intervention in the foreign exchange market is not allowed.
Under a managed float exchange rate system, the Fed may attempt to stimulate the U.S. economy by ____ the dollar. Such an adjustment in the dollar's value should ____ the U.S. demand for products produced by major foreign countries.
weakening; increase
weakening; decrease
strengthening; increase
strengthening; decrease
The value of the Canadian dollar, Japanese yen, and Australian dollar with respect to the U.S. dollar are part of a:
pegged system.
fixed system.
managed float system.
crawling peg system.
The interest rate of a country with a currency board:
is less stable than it would be without a currency board
is typically below the interest rate of the currency to which it is tied.
will move in tandem with the interest rate of the currency to which it is tied.
is completely independent of the interest rate of the currency to which it is tied.
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.
more; more
less; less
more; less
less; more
Assume a central bank exchanges its currency for other foreign currencies in the foreign exchange market, but does not adjust for the resulting change in the money supply. This is an example of:
pegged intervention.
indirect intervention.
nonsterilized intervention.
sterilized intervention.
If the Fed desires to weaken the dollar without affecting the dollar money supply, it should
exchange dollars for foreign currencies, and sell some of its existing Treasury security holdings for dollars.
exchange foreign currencies for dollars, and sell some of its existing Treasury security holdings for dollars.
exchange dollars for foreign currencies, and buy existing Treasury securities with dollars.
exchange foreign currencies for dollars, and buy existing Treasury securities with dollars.
Which of the following is an example of direct intervention in foreign exchange markets?
lowering interest rates.
increasing the inflation rate.
exchanging dollars for foreign currency.
imposing barriers on international trade.
A strong dollar places ____ pressure on inflation, which in turn places ____ pressure on the dollar
upward; upward
downward; upward
upward; downward
downward; downward
A weaker dollar places ____ pressure on U.S. inflation, which in turn places ____ pressure on U.S. interest rates, which places ____ pressure on U.S. bond prices.
upward; downward; upward
upward; downward; downward
upward; upward; downward
downward; upward; upward
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?
Weaken the dollar
Strengthen the dollar
Buy dollars with foreign currency in the foreign exchange market
Implement a tight monetary policy
When using indirect intervention, a central bank is likely to focus on:
inflation
interest rates.
income levels.
expectations of future exchange rates.
Which of the following countries was probably the least affected (directly or indirectly) by the Asian crisis?
Thailand
Indonesia
Malaysia
China
China's yuan is presently
allowed to fluctuate freely without any central bank intervention.
allowed to fluctuate but with central bank intervention.
pegged to the dollar.
pegged to the euro.
Which of the following countries have not adopted the euro?
Germany
Italy
Switzerland
France
