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, […]
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
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 […]
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
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.
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
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
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
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
What is the marginal investment in accounts receivable under the proposed plan? (See Table 14.7) A) $1,234,375 B) $1,382,500 C) $1,567,300 D) $1,841,570 ANSWER A
