When countries have pegged exchange rate systems, they often set up ________ to improve the credibility of the system in the eyes of the global traders. A) target zone systems B) futures markets for currencies C) currency board systems D) sterilized interventions ANSWER Answer: C
Date: September 19th, 2020
Which one of the following systems would most often be used by a developing economy? A) target zone B) currency board C) floating exchange rate D) crawling peg ANSWER Answer: D
Date: September 19th, 2020
What is the most likely outcome if a central bank suddenly prints a large amount of new money? A) no change in the inflation rate B) higher inflation C) recession D) prosperity ANSWER Answer: B
Date: September 19th, 2020
Why are pegged exchange rates often overvalued and difficult to governments to maintain? What will be an ideal response? ANSWER Answer: Governments that maintain a pegged exchange rate often find the position difficult to maintain. Too often, the exchange rate overvalues the local currency on the foreign exchange markets. This situation produces a […]
Date: September 19th, 2020
For a fixed exchange rate system to work successfully, the government that oversees its operations must be able to make tight budget and monetary policies prevail from the beginning. Agree or disagree and explain why. What will be an ideal response? ANSWER Answer: Under a fixed exchange rate system, there is a strong […]
Date: September 19th, 2020
How would a target zone system or a pegged exchange rate system that has been in place mask the true currency risk? What will be an ideal response? ANSWER Answer: If the peg or target zone holds for a long time, historical volatility appears to be zero or very limited, but this may […]
Date: September 19th, 2020
What is the negative side effect on the money supply of a non-sterilized foreign exchange intervention? A) A higher money supply eventually leads to lower inflation, and the foreign exchange objective of the central bank’s policy may conflict with its abroad goal of price stability. B) A higher money supply eventually leads to higher inflation, […]
Date: September 19th, 2020
What is the relationship of currency risk in a floating exchange rate system to the future exchange rate changes? What will be an ideal response? ANSWER Answer: To characterize the risk of a currency position, you must try to characterize the conditional distribution of the future exchange rate changes. With floating exchange rates, […]
Date: September 19th, 2020
What are the three major components of the official reserves account? A) foreign exchange reserves, gold, and IMF-related reserve assets B) foreign exchange reserves, foreign government bonds, gold C) IMF-related reserve assets, gold, and U.S. Dollars D) gold, IMF-related reserves assets, and government-owned land ANSWER Answer: A
Date: September 19th, 2020
Identify the most important components of the official international reserves of a central bank? What will be an ideal response? ANSWER Answer: Official reserves consist of three major components: foreign exchange reserves, gold reserves, and IMF-related reserve assets, with the first being by far the most important component. Foreign exchange reserves are all […]
Date: September 19th, 2020
