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
The exchange rate system in which a country allows the value of the currency to be determined by the market forces of supply and demand is known as a A) currency board. B) floating exchange rate. C) target zone. D) pegged exchange rate system. ANSWER Answer: B
Date: September 19th, 2020
In the ________ exchange rate system, the currency has limited flexibility and the rate is kept within a fixed band. A) currency board B) floating exchange rate C) target zone D) pegged exchange rate system ANSWER Answer: C
Date: September 19th, 2020
What is the name of the account in which many central banks require their banks to hold a percentage of the deposits as reserves at the central bank? A) retained earnings B) excess reserves C) margin account D) required reserves ANSWER Answer: D
Date: September 19th, 2020
The phenomenon of foreign currency driving out local currencies as a means of payment and a savings vehicle is known as ________. A) seigniorage B) dollarization C) sterilization D) devaluation ANSWER Answer: B
Date: September 19th, 2020
What is the name of the unit of account created by the IMF which is sometimes used to denominate contracts? A) European currency unit B) special drawing right C) floating currencies D) basket of currencies ANSWER Answer: B
Date: September 19th, 2020
