Assignment 14 (Chapter 15)

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1. The exchange-rate system that best characterizes the present international monetary arrangement used by industrialized countries is: Freely fluctuating exchange rates Adjustable pegged exchange rates Managed floating exchange rates Pegged or fixed exchange rates
2. Which exchange-rate mechanism calls for frequent redefining of the par value by small amounts to remove a payments disequilibrium? Dual exchange rates Adjustable pegged exchange rates Managed floating exchange rates Crawling pegged exchange rates
3. Under managed floating exchange rates, if the rate of inflation in the United States is less than the rate of inflation of its trading partners, the dollar will likely: Appreciate against foreign currencies Depreciate against foreign currencies Be officially revalued by the government Be officially devalued by the government
4. Under the historic adjustable pegged exchange-rate system(i.e., the Bretton Woods system, 1945-1973), member countries were permitted to correct persistent and sizable payment deficits (i.e., fundamental disequilibrium) by: Officially revaluing their currencies Officially devaluing their currencies Allowing their currencies to depreciate in the free market Allowing their currencies to appreciate in the free market
5. In 1973, the reform of the international monetary system resulted in the change from: Adjustable pegged rates to managed floating rates Managed floating rates to adjustable pegged rates Crawling pegged rates to freely floating rates Freely floating rates to crawling pegged rates
6. Under a floating exchange-rate system, if American exports increase and American imports fall, the value of the dollar will: Appreciate Depreciate Be officially revalued Be officially devalued
7. Under a floating exchange-rate system, if American capital inflows decrease and American capital outflows rise, the value of the dollar will: Appreciate Depreciate Be officially revalued Be officially devalued
8. Given an initial equilibrium in the money market and foreign exchange market, suppose the Federal Reserve increases the money supply of the United States. Under a floating exchange-rate system, the dollar would: Appreciate in value relative to other currencies Depreciate in value relative to other currencies Be officially devalued by the government Be officially revalued by the government
9. Under a floating exchange-rate system, if the U.S. dollar depreciates against the Swiss franc: American exports to Switzerland will be cheaper in francs American exports to Switzerland will be more expensive in francs American imports from Switzerland will be cheaper in dollars None of the above
10. If the Japanese yen appreciates against other currencies in the exchange markets, this will: Have no effect on the Japanese balance of trade Tend to improve the Japanese balance of trade Tend to worsen the Japanese balance of trade None of the above
11. Suppose Sweden's inflation rate is less than that of its trading partner. Under a floating exchange-rate system, Sweden would experience a(n): Appreciation in its currency Depreciation in its currency Fall in the level of its exports Rise in the level of its imports
12. Assume that interest rates in London rise relative to those in Switzerland. Under a floating exchange-rate system, one would expect the pound (relative to the franc) to: Depreciate due to the increased demand for pounds Depreciate due to the increased demand for francs Appreciate due to the increased demand for francs Appreciate due to the increased demand for pounds
13. Under a floating exchange-rate system, which of the following best leads to a depreciation in the value of the Canadian dollar? A decrease in the Canadian money supply A fall in the Canadian interest rate An increase in national income overseas Rising inflation overseas
14. Which of the following is not a potential disadvantage of freely floating exchange rates? They require larger amounts of international reserves than other exchange systems Demand schedules for imports and exports may be price speculation There may occur large amounts of destabilizing speculation Capital movements among nations may be hindered via exchange-rate fluctuations
15. Proponents of freely floating exchange rates maintain that: Central banks can easily modify fluctuations in exchange rates The system allows policymakers freedom in pursuing domestic economic goals Inelastic demand schedules prevent large fluctuations in exchange rates Inelastic supply schedules prevent large fluctuations in exchange rates
16. A potential limitation of freely floating exchange rates is that: Countries require a larger amount of international reserves than otherwise Countries are unable to initiate economic policies to combat unemployment Exchange rates may experience wide and frequent fluctuations Demand tends to be highly sensitive to price movements
17. The central bank of the United Kingdom could prevent the pound from appreciating by: Selling pounds on the foreign exchange market Buying pounds on the foreign exchange market Reducing its inflation rate relative to its trading partners Promoting domestic investment and technological development
18. As a policy instrument, currency devaluation may be controversial since it: Imposes hardships on the exporters of foreign countries Imposes hardships on exporters of the devaluing country Is generally followed by unemployment in the devaluing country Is generally followed by price deflation in the devaluing country
19. Figure 15.1 shows the market for the Swiss franc. In the figure, the initial demand for marks and the supply of marks are depicted by D₀ and S₀, respectively. Answer the question(s) on the basis of the information shown in this figure. Figure 15.1. The Market for the Swiss Franc Refer to Figure 15.1. Suppose that the United States increases its imports from Switzerland, resulting in a rise in the demand for francs from D₀ to D₁. Under a floating exchange-rate system, the new equilibrium exchange rate would be: $0.40 per franc $0.50 per franc $0.60 per franc $0.70 per franc
20. Figure 15.1 shows the market for the Swiss franc. In the figure, the initial demand for marks and the supply of marks are depicted by D₀ and S₀, respectively. Answer the question(s) on the basis of the information shown in this figure. Figure 15.1. The Market for the Swiss Franc Refer to Figure 15.1. Suppose the demand for francs increases from D₀ to D₁. Under a fixed exchange-rate system, the U.S. exchange stabilization fund could maintain a fixed exchange rate of $0.50 per franc by: Selling francs for dollars on the foreign exchange market Selling dollars for francs on the foreign exchange market Decreasing U.S. exports, thus decreasing the supply of francs Stimulating U.S. imports, thus increasing the demand for francs
21. Under managed floating exchange rates, the Federal Reserve could offset an appreciation of the dollar against the yen by: Increasing the money supply, which promotes falling interest rates and net investment outflows Increasing the money supply, which promotes rising interest rates and net investment inflows Decreasing the money supply, which promotes falling interest rates and net investment outflows Decreasing the money supply, which promotes rising interest rates and net investment inflows
22. If Mexico fully dollarizes its economy, it agrees to: Print pesos only to finance deficits of its national government Use the U.S. dollar alongside its peso to finance transactions Have the U.S. Treasury be in charge of its tax collections Replace pesos with U.S. dollars in its economy
23. Exchange rate or capital controls: Achieved prominence during the economic crises of the late 1930s Were popular immediately after World War II Are widely used by the developing nations All of the above
24. By the early 1970s, gold had been phased out of the international monetary system. True False
25. Developing countries with more than one major trading partner often peg their currencies to a group or basket of those trading partner currencies. True False

Copyright 2008, by the Contributing Authors. Cite/attribute Resource. admin. (2009, January 27). Assignment 14 (Chapter 15). Retrieved November 24, 2009, from Free Online Course Materials — USU OpenCourseWare Web site: http://ocw.usu.edu/economics/international-economics/Assignment14.htm. This work is licensed under a Creative Commons License.

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Assignment 14 (Chapter 15)

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