Question 1

China is commonly criticized for keeping the yuan's value at superficially high levels.

Accepted Answer

A) True 
 B)False

Question 2

Which one is not a disadvantage of a freely floating exchange rate system?

Accepted Answer

A)  It can adversely affect a country that has high unemployment.
B)  It can adversely affect a country that has high inflation.
C)  The government may intervene to change the value of a given currency.
D)  The exchange rate risk is high and may be costly to manage.E) All of the above
F) C) and D) C

Question 3

From a financial management perspective, which of the following is true regarding the introduction of the Euro?

Accepted Answer

A)  U.S.-based MNCs are not subject to exchange rate risk when they have transactions in euros.
B)  The euro is pegged to all other European currencies.
C)  Transactions costs decline for MNCs that conduct transactions within Europe.
D)  The euro replaced the British pound.E) A) and B)
F) B) and C)

Question 4

Among the reasons for government intervention are:

Accepted Answer

A)  to smooth exchange rate movement.
B)  to establish implicit exchange rate boundaries.
C)  to respond to temporary disturbances.
D)  all of the aboveE) B) and D)
F) B) and C)

Question 5

A strong dollar places ____ pressure on U.S. inflation, which in turn places ____ pressure on U.S. interest rates, which in turn place ____ pressure on U.S. bond prices.

Accepted Answer

A)  downward; upward; upward
B)  downward; downward; upward
C)  upward; upward; downward
D)  upward; downward; upwardE) All of the above
F) A) and C)

Question 6

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.

Accepted Answer

A)  weakening; increase
B)  weakening; decrease
C)  strengthening; increase
D)  strengthening; decreaseE) B) and D)
F) A) and D)

Question 7

A major advantage of the euro is the complete elimination of exchange rate risk on transactions between participating European countries, which encourages more trade and capital flows within Europe.

Accepted Answer

A) True 
 B)False

Question 8

The monetary policy implemented by the European Central Bank always results in favorable effects on all countries in the eurozone.

Accepted Answer

A) True 
 B)False

Question 9

The Bretton Woods Agreement called for the establishment of a single European currency.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is the most likely reason for revaluation of a currency?

Accepted Answer

A)  To reduce inflation.
B)  To stimulate the local economy.
C)  To increase the amount of exports.
D)  To increase balance-of-trade surplus.E) C) and D)
F) B) and C)

Question 11

Under a pegged exchange rate system, the home currency's value is pegged to a foreign currency.

Accepted Answer

A) True 
 B)False

Question 12

If foreign investors fear that a peg may be broken because of fund outflows from that country, they may attempt to purchase more of that currency before the peg is broken.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is an example of direct intervention in foreign exchange markets?

Accepted Answer

A)  lowering interest rates.
B)  increasing the inflation rate.
C)  exchanging dollars for foreign currency.
D)  imposing barriers on international trade.E) A) and C)
F) A) and B)

Question 14

A primary result of the Bretton Woods Agreement was:

Accepted Answer

A)  the establishment of the European Monetary System (EMS) .
B)  establishing specific rules for when tariffs and quotas could be imposed by governments.
C)  establishing that exchange rates of most major currencies were to be allowed to fluctuate 1% above or below their initially set values.
D)  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) .E) None of the above
F) B) and C)

Question 15

Which of the following are true about the Southeast Asian currency crisis?

Accepted Answer

A)  It was preceded by several years of large capital inflows to Asia.
B)  It was preceded by a five-year recession in Asia.
C)  Asian interest rates declined during the crisis.
D)  Asian exchange rates were pegged to the Japanese yen to resolve the crisis.E) None of the above
F) C) and D)

Question 16

A weak dollar is normally expected to cause:

Accepted Answer

A)  high unemployment and high inflation in the U.S.
B)  high unemployment and low inflation in the U.S.
C)  low unemployment and low inflation in the U.S.
D)  low unemployment and high inflation in the U.S.E) B) and C)
F) B) and D) D

Question 17

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.

Accepted Answer

A)  floating rate; fixed rate
B)  floating rate; floating rate
C)  fixed rate; fixed rate
D)  fixed rate; floating rateE) A) and B)
F) A) and C)

Question 18

The Smithsonian Agreement called for a devaluation of the U.S. dollar by about ____ percent.

Accepted Answer

A)  2.25
B)  6
C)  10
D)  8E) A) and D)
F) A) and C) D

Question 19

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.

Accepted Answer

A)  upward; downward; upward
B)  upward; downward; downward
C)  upward; upward; downward
D)  downward; upward; upward
E)  downward; downward; upwardF) D) and E)
G) B) and C)

Question 20

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:

Accepted Answer

A)  pegged intervention.
B)  indirect intervention.
C)  nonsterilized intervention.
D)  sterilized intervention.
E)  A and DF) A) and B)
G) All of the above

Exam 6: Government Influence on Exchange Rates

China is commonly criticized for keeping the yuan's value at superficially high levels.

Correct Answer
verified

Which one is not a disadvantage of a freely floating exchange rate system?

Correct Answer
verified
C

From a financial management perspective, which of the following is true regarding the introduction of the Euro?

Correct Answer
verified

Among the reasons for government intervention are:

Correct Answer
verified

A strong dollar places pressure on U.S. inflation, which in turn places pressure on U.S. interest rates, which in turn place pressure on U.S. bond prices.

Correct Answer
verified

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.

Correct Answer
verified

A major advantage of the euro is the complete elimination of exchange rate risk on transactions between participating European countries, which encourages more trade and capital flows within Europe.

Correct Answer
verified

The monetary policy implemented by the European Central Bank always results in favorable effects on all countries in the eurozone.

Correct Answer
verified

The Bretton Woods Agreement called for the establishment of a single European currency.

Correct Answer
verified

Which of the following is the most likely reason for revaluation of a currency?

Correct Answer
verified

Under a pegged exchange rate system, the home currency's value is pegged to a foreign currency.

Correct Answer
verified

If foreign investors fear that a peg may be broken because of fund outflows from that country, they may attempt to purchase more of that currency before the peg is broken.

Correct Answer
verified

Which of the following is an example of direct intervention in foreign exchange markets?

Correct Answer
verified

A primary result of the Bretton Woods Agreement was:

Correct Answer
verified

Which of the following are true about the Southeast Asian currency crisis?

Correct Answer
verified

A weak dollar is normally expected to cause:

Correct Answer
verified
D

Correct Answer
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The Smithsonian Agreement called for a devaluation of the U.S. dollar by about ____ percent.

Correct Answer
verified
D

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.

Correct Answer
verified

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:

Correct Answer
verified

Exam 6: Government Influence on Exchange Rates

China is commonly criticized for keeping the yuan's value at superficially high levels.

Correct AnswerverifiedShow Answer

Which one is not a disadvantage of a freely floating exchange rate system?

Correct AnswerverifiedC

From a financial management perspective, which of the following is true regarding the introduction of the Euro?

Correct AnswerverifiedShow Answer

Among the reasons for government intervention are:

Correct AnswerverifiedShow Answer

A strong dollar places ____ pressure on U.S. inflation, which in turn places ____ pressure on U.S. interest rates, which in turn place ____ pressure on U.S. bond prices.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

A major advantage of the euro is the complete elimination of exchange rate risk on transactions between participating European countries, which encourages more trade and capital flows within Europe.

Correct AnswerverifiedShow Answer

The monetary policy implemented by the European Central Bank always results in favorable effects on all countries in the eurozone.

Correct AnswerverifiedShow Answer

The Bretton Woods Agreement called for the establishment of a single European currency.

Correct AnswerverifiedShow Answer

Which of the following is the most likely reason for revaluation of a currency?

Correct AnswerverifiedShow Answer

Under a pegged exchange rate system, the home currency's value is pegged to a foreign currency.

Correct AnswerverifiedShow Answer

If foreign investors fear that a peg may be broken because of fund outflows from that country, they may attempt to purchase more of that currency before the peg is broken.

Correct AnswerverifiedShow Answer

Which of the following is an example of direct intervention in foreign exchange markets?

Correct AnswerverifiedShow Answer

A primary result of the Bretton Woods Agreement was:

Correct AnswerverifiedShow Answer

Which of the following are true about the Southeast Asian currency crisis?

Correct AnswerverifiedShow Answer

A weak dollar is normally expected to cause:

Correct AnswerverifiedD

Correct AnswerverifiedShow Answer

The Smithsonian Agreement called for a devaluation of the U.S. dollar by about ____ percent.

Correct AnswerverifiedD

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.

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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C

Correct Answer
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Correct Answer
verified

A strong dollar places pressure on U.S. inflation, which in turn places pressure on U.S. interest rates, which in turn place pressure on U.S. bond prices.

Correct Answer
verified

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.

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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D

Correct Answer
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Correct Answer
verified
D

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.

Correct Answer
verified

Correct Answer
verified