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
When a central bank buys foreign currency, its international reserves ________. A) decrease B) increase C) remain unchanged D) are difficult to determine ANSWER Answer: B
Date: September 19th, 2020
Why would a central bank buy or sell foreign currency? What will be an ideal response? ANSWER Answer: When a central bank buys (sells) foreign currency, its international reserves increase (decrease), and the money supply increases (decreases) simultaneously.
Date: September 19th, 2020
What is the cost of marginal investment in accounts receivable under the proposed plan? (See Table 14.7) A) $313,460 B) $276,500 C) $246,875 D) $368,314 ANSWER C
Date: September 19th, 2020
Describe the Bretton Woods currency system? What will be an ideal response? ANSWER Answer: In the Bretton Woods System, in place between 1944 and 1973, the participating countries agreed to an exchange rate regime that linked their exchange rates to the dollar. They could fluctuate in a 1% band around a fixed parity. […]
Date: September 19th, 2020
In fixed exchange rate systems, the tendency is for the domestic currency to be ________. A) undervalued B) at parity C) overvalued D) unchanged relative to the rest of the world’s currencies ANSWER Answer: C
Date: September 19th, 2020
