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1、1 Financial Markets and Institutions,6e(Mishkin/Eakins)Chapter 14 The International Financial System 14.1 Multiple Choice 1)A central bank sale of _ to purchase _ in the foreign exchange market results in an equal rise in its international reserves and the monetary base.A)foreign assets;domestic cur
2、rency B)foreign assets;foreign currency C)domestic currency;foreign assets D)domestic currency;domestic currency Answer:C Question Status:Previous Edition 2)A central bank sale of _ to purchase _ in the foreign exchange market results in an equal decline in its international reserves and the monetar
3、y base.A)foreign assets;domestic currency B)foreign assets;foreign currency C)domestic currency;foreign assets D)domestic currency;domestic currency Answer:A Question Status:Previous Edition 3)A central bank _ of domestic currency and corresponding _ of foreign assets in the foreign exchange market
4、leads to an equal _ in its international reserves and the monetary base.A)sale;purchase;decline B)sale;sale;increase C)purchase;sale;increase D)purchase;sale;decline Answer:D Question Status:Previous Edition 4)A central bank _ of domestic currency and corresponding _ of foreign assets in the foreign
5、 exchange market leads to an equal _ in its international reserves and the monetary base.A)sale;purchase;increase B)sale;sale;decline C)purchase;sale;increase D)purchase;purchase;decline Answer:A Question Status:Previous Edition 2 5)When the central bank allows the purchase or sale of domestic curre
6、ncy to have an effect on the monetary base,it is called A)a sterilized foreign exchange intervention.B)an unsterilized foreign exchange intervention.C)an exchange rate feedback rule.D)a money neutral foreign exchange intervention.Answer:B Question Status:Previous Edition 6)A foreign exchange interve
7、ntion with an offsetting open market operation that leaves the monetary base unchanged is called A)an unsterilized foreign exchange intervention.B)a sterilized foreign exchange intervention.C)an exchange rate feedback rule.D)a money neutral foreign exchange intervention.Answer:B Question Status:Prev
8、ious Edition 7)An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to A)a gain in international reserves.B)an increase in the money supply.C)an appreciation in the domestic currency.D)all of the above.E)only A and B of the above.Answer:E Question Status:P
9、revious Edition 8)An unsterilized intervention in which domestic currency is sold to purchase foreign assets leads to A)a gain in international reserves.B)a decrease in the money supply.C)an appreciation in the domestic currency.D)all of the above.E)only A and B of the above.Answer:A Question Status
10、:Previous Edition 9)A Federal Reserve decision to sell dollars in order to buy foreign assets in the foreign exchange market has the same effect as an open market _ of bonds to _ the monetary base and the money supply.A)sale;decrease B)purchase;decrease C)sale;increase D)purchase;increase Answer:D Q
11、uestion Status:Previous Edition 3 10)A Federal Reserve decision to purchase dollars by selling foreign assets in the foreign exchange market has the same effect as an open market _ of bonds to _ the monetary base and the money supply.A)sale;decrease B)purchase;decrease C)sale;increase D)purchase;inc
12、rease Answer:A Question Status:Previous Edition 11)An unsterilized intervention in which the domestic currency is sold to purchase foreign assets results in an expected _ of the domestic currency that shifts the RF schedule to the _ A)depreciation;right.B)appreciation;right.C)depreciation;left.D)app
13、reciation;left.Answer:A Question Status:Previous Edition 12)An unsterilized intervention in which the domestic currency is purchased by selling foreign assets results in an expected _ of the domestic currency that shifts the RF schedule to the _ A)depreciation;right.B)appreciation;right.C)depreciati
14、on;left.D)appreciation;left.Answer:D Question Status:Previous Edition 13)An expected appreciation of the domestic currency that shifts the RF schedule to the left is caused by a(n)_ intervention in which the domestic currency is _.A)sterilized;sold to purchase foreign assets B)sterilized;purchased b
15、y selling foreign assets C)unsterilized;sold to purchase foreign assets D)unsterilized;purchased by selling foreign assets Answer:D Question Status:Previous Edition 14)Because sterilized interventions mean offsetting open market operations,there is no impact on the monetary base and the money supply
16、,and therefore a sterilized intervention A)causes the exchange rate to overshoot in the short run.B)causes the exchange rate to undershoot in the short run.C)causes the exchange rate to depreciate in the short run,but has no effect on the exchange rate in the long run.D)has no effect on the exchange
17、 rate.Answer:D Question Status:Previous Edition 4 15)Because sterilized interventions mean offsetting open market operations,A)there is no impact on the monetary base.B)there is no impact on the money supply.C)there is no effect on the exchange rate.D)all of the above occur.E)only A and B of the abo
18、ve occur.Answer:D Question Status:Previous Edition 16)The difference between merchandise exports and imports is called the A)current account balance.B)capital account balance.C)balance of payments.D)trade balance.Answer:D Question Status:Previous Edition 17)A current account _ indicates that the Uni
19、ted States is _ its claims on foreign wealth.A)surplus;increasing B)surplus;decreasing C)deficit;increasing D)balance;decreasing Answer:A Question Status:Previous Edition 18)A current account _ indicates that the United States is _ its claims on foreign wealth.A)deficit;decreasing B)deficit;increasi
20、ng C)surplus;decreasing D)balance;increasing Answer:A Question Status:Previous Edition 19)Holding other factors constant,which of the following would decrease the size of the U.S.current account deficit?A)A increase in the amount of services purchased from foreigners B)An increase in the amount of g
21、oods purchases from foreigners C)An increase in the amount of goods sold to foreigners D)Only A and B of the above Answer:C Question Status:Previous Edition 5 20)Holding other factors constant,which of the following would increase the size of the U.S.current account deficit?A)Sales of U.S.farm produ
22、cts in Europe B)Visits by European tourists to the United States C)Increasing travel by American college students in Europe D)Both A and B of the above Answer:C Question Status:Previous Edition 21)The current account balance plus the capital account balance equals A)the amount of unsterilized exchan
23、ge market intervention.B)the trade balance.C)the net change in government international reserves.D)both A and C of the above.Answer:C Question Status:Previous Edition 22)If the current account balance shows a surplus,and capital account receipts exceed capital account payments,then the net change in
24、 government international reserves must be _,indicating a(n)_ in U.S.international reserves.A)positive;increase B)negative;increase C)negative;decrease D)positive;decrease Answer:A Question Status:Previous Edition 23)Which of the following statements is correct?A)current account balance=capital acco
25、unt balance B)current account balance=capital account balance+net change in government international reserves C)current account balance+capital account balance=net change in government international reserves D)current account balance+net change in government international reserves=capital account ba
26、lance Answer:C Question Status:Previous Edition 24)The Bretton Woods system was one in which central banks A)agreed to limit domestic money growth to the average of the seven largest industrial nations.B)agreed not to intervene in the foreign exchange market to maintain a fixed exchange rate regime
27、that had existed prior to World War I.C)agreed to limit domestic money growth to the average of the five largest industrial nations.D)bought and sold their own currencies to keep their exchange rates fixed.Answer:D Question Status:Previous Edition 6 25)The Bretton Woods agreement created the _,which
28、 was given the task of promoting the growth of world trade by setting rules for the maintenance of fixed exchange rates and by making loans to countries that were experiencing balance of payments difficulties.A)IMF B)World Bank C)Central Settlements Bank D)Bank of International Settlements E)Europea
29、n Exchange Rate Mechanism(ERM)Answer:A Question Status:Previous Edition 26)The Bretton Woods agreement set up the _,which currently provides long-term loans to assist developing countries to build dams,roads,and other physical capital that contributes to economic development.A)International Monetary
30、 Fund B)World Bank C)Central Settlements Bank D)Bank of International Settlements E)European Exchange Rate Mechanism(ERM)Answer:B Question Status:Previous Edition 27)What kind of exchange rate system did the Bretton Woods agreement establish?A)floating B)managed float C)dirty float D)fixed Answer:D
31、Question Status:Previous Edition 28)In the Bretton Woods system,the anchor currency was the A)euro.B)British pound.C)German mark.D)U.S.dollar.Answer:D Question Status:Previous Edition 7 29)Which of the following are true statements about the Bretton Woods system?A)The Bretton Woods system was a fixe
32、d exchange rate regime,in which central banks bought and sold their own currencies to keep their exchange rates fixed.B)To maintain fixed exchange rates when countries had balance of payments deficits and were losing international reserves,the IMF would loan deficit countries international reserves
33、contributed by other members.C)The German mark was called a reserve currency because it was used to denominate the securities central banks held as international reserves.D)All of the above are true.E)Only A and B of the above are true.Answer:E Question Status:Previous Edition 30)Which of the follow
34、ing are true statements about the Bretton Woods system?A)The Bretton Woods system was a flexible exchange rate regime,in which central banks allowed their currencies to float within a wide trading band.B)The U.S.dollar was called a reserve currency because it was used to denominate the securities ce
35、ntral banks held as international reserves.C)The Bretton Woods agreement broke down in 1945.D)Only A and B of the above are true.Answer:B Question Status:Previous Edition 31)Under a fixed exchange rate regime,when the domestic currency is undervalued,the central bank must _ the domestic currency to
36、keep the exchange rate fixed and as a result it _ international reserves.A)purchase;gains B)sell;gains C)purchase;loses D)sell;loses Answer:B Question Status:Previous Edition 32)Under a fixed exchange rate regime,when the domestic currency is overvalued,the central bank must _ the domestic currency
37、to keep the exchange rate fixed and as a result it _ international reserves.A)purchase;loses B)sell;loses C)purchase;gains D)sell;gains Answer:A Question Status:Previous Edition 8 33)Under a fixed exchange rate regime,if the domestic currency is initially _,that is _ par,the central bank must interv
38、ene to sell the domestic currency by purchasing foreign assets.A)overvalued;below B)overvalued;above C)undervalued;below D)undervalued;above Answer:C Question Status:Previous Edition 34)Under a fixed exchange rate regime,if the domestic currency is initially _,that is _ par,the central bank must int
39、ervene to buy the domestic currency by selling foreign assets.A)overvalued;below B)overvalued;above C)undervalued;below D)undervalued;above Answer:B Question Status:Previous Edition 35)If the domestic currency is initially undervalued,that is below par,the central bank must intervene to sell the _ c
40、urrency by purchasing _ assets.A)domestic;foreign B)domestic;domestic C)foreign;foreign D)foreign;domestic Answer:A Question Status:Previous Edition 36)If a central bank does not want to see its currency fall in value,it may pursue _ monetary policy to _ the domestic interest rate,thereby strengthen
41、ing its currency.A)expansionary;raise B)contractionary;raise C)expansionary;lower D)contractionary;lower Answer:B Question Status:Previous Edition 37)If a central bank does not want to see its currency rise in value,it may pursue _ monetary policy to _ the domestic interest rate,thereby weakening it
42、s currency.A)expansionary;raise B)contractionary;raise C)expansionary;lower D)contractionary;lower Answer:C Question Status:Previous Edition 9 38)If a countrys central bank eventually runs out of international reserves,it cannot keep its currency from _ and a _ must occur in which the par exchange v
43、alue is reset at a _ level.A)appreciating;revaluation;higher B)depreciating;revaluation;higher C)depreciating;devaluation;lower D)appreciating;devaluation;lower Answer:C Question Status:Previous Edition 39)Depreciation of a currency occurs when A)a floating exchange rate adjusts upward.B)a floating
44、exchange rate adjusts downward.C)a fixed exchange rate is adjusted upward.D)a fixed exchange rate is adjusted downward.Answer:B Question Status:Previous Edition 40)Policy makers may not want to see their countrys currency appreciate because A)this would hurt consumers in their country by making fore
45、ign goods more expensive.B)this would hurt domestic businesses by making foreign goods cheaper in their country.C)this would increase inflation in their country.D)this would decrease the wealth of the country.Answer:B Question Status:Previous Edition 41)Under a managed float exchange rate regime,pol
46、icymakers frequently do not want to see their currencies depreciate because it makes _ goods more expensive for _ consumers and contributes to inflation.A)foreign;foreign B)foreign;domestic C)domestic;foreign D)domestic;domestic Answer:B Question Status:Previous Edition 42)Revaluation of a currencys
47、 value occurs when A)a floating exchange rate adjusts upward.B)a floating exchange rate adjusts downward.C)a fixed exchange rate is adjusted upward.D)a fixed exchange rate is adjusted downward.Answer:C Question Status:Previous Edition 10 43)Leading up to the foreign exchange crisis of September 1992
48、,the Bank of England wanted to pursue a(n)_ monetary policy and the German Bundesbank wanted to pursue a(n)_ monetary policy.A)expansionary,expansionary B)expansionary;contractionary C)contractionary;expansionary D)contractionary;contractionary Answer:B Question Status:Previous Edition 44)When the B
49、undesbank lowered German mark interest rates in September 1992,A)there was a massive sell-off of German marks,requiring intervention to support the value of the mark.B)there was a massive sell-off of British pounds,requiring intervention to support the value of the pound.C)there was a gradual sell-o
50、ff of German marks,which avoided the need for intervention to support the value of the mark.D)there was a gradual sell-off of British pounds,which avoided the need for intervention to support the value of the pound.Answer:B Question Status:Previous Edition 45)In September 1992,the Bundesbank attempt