Test Bank International Financial Management 12th Edition Jeff
Madura
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Solutions Manual International Financial Management 12th edition Jeff
Madura. Complete download:
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Chapter 6—Government Influence on Exchange Rates
1. To force the value of the pound to appreciate against the dollar, the Federal Reserve should:
a. sell dollars for pounds in the foreign exchange market and the European Central Bank
(ECB) should sell dollars for pounds in the foreign exchange market.
b. sell pounds for dollars in the foreign exchange market and the European Central Bank
(ECB) should sell dollars for pounds in the foreign exchange market.
c. sell pounds for dollars in the foreign exchange market and the European Central Bank
(ECB) should not intervene.
d. sell dollars for pounds in the foreign exchange market and the European Central Bank
(ECB) should sell pounds for dollars in the foreign exchange market.
ANS: A
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
2. A weak dollar is normally expected to cause:
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.
ANS: D
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Easy
OBJ: INFM.MADU.15.06.04
STA: DISC.INFM.MADU.15.02
3. A strong dollar is normally expected to cause:
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.
ANS: B
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Easy
OBJ: INFM.MADU.15.06.04
STA: DISC.INFM.MADU.15.02
4. To force the value of the British pound to depreciate against the dollar, the Federal Reserve should:
a. sell dollars for pounds in the foreign exchange market and the Bank of England should sell
dollars for pounds in the foreign exchange market.
b. sell pounds for dollars in the foreign exchange market and the Bank of England should sell
dollars for pounds in the foreign exchange market.
c. sell pounds for dollars in the foreign exchange market and the Bank of England should sell
pounds for dollars in the foreign exchange market.
d. sell dollars for pounds in the foreign exchange market and the Bank of England should sell
pounds for dollars in the foreign exchange market.
ANS: C
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
5. 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.
a. floating rate; fixed rate
b. floating rate; floating rate
c. fixed rate; fixed rate
d. fixed rate; floating rate
ANS: C
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
6. A primary result of the Bretton Woods Agreement was:
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).
ANS: C
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Moderate
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
7. A primary result of the Smithsonian Agreement was:
a. the establishment of the European Monetary System (EMS).
b. establishing that exchange rates of most major countries were to be allowed to fluctuate
2.25% above or below their initially set values.
c. establishing specific rules for when tariffs and quotas could be imposed by governments.
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).
ANS: B
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
8. Under a fixed exchange rate system:
a. a foreign exchange market does not exist.
b. central bank intervention in the foreign exchange market is not necessary.
c. central bank intervention in the foreign exchange market is often necessary.
d. central bank intervention in the foreign exchange market is not allowed.
ANS: C
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
9. 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.
a. weakening; increase
b. weakening; decrease
c. strengthening; increase
d. strengthening; decrease
ANS: B
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
10. The value of the Canadian dollar, Japanese yen, and Australian dollar with respect to the U.S. dollar
are part of a:
a. pegged system.
b. fixed system.
c. managed float system.
d. crawling peg system.
ANS: C
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
11. The interest rate of a country with a currency board:
a. is less stable than it would be without a currency board.
b. is typically below the interest rate of the currency to which it is tied.
c. will move in tandem with the interest rate of the currency to which it is tied.
d. is completely independent of the interest rate of the currency to which it is tied.
ANS: C
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
12. The currency of Country X is pegged to the currency of Country Y. Assume that Country Y's currency
depreciates against the currency of Country Z. It is likely that Country X will export ____ to Country
Z and import ____ from Country Z.
a. more; more
b. less; less
c. more; less
d. less; more
ANS: C
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
13. Assume Countries A, B, and C produce goods that are substitutes of each other and that these countries
engage in trade with each other. Assume that Country A's currency floats against Country B's
currency, and that Country C's currency is pegged to B's. If A's currency depreciates against B, then
A's exports to C should ____, and A's imports from C should ____.
a. decrease; increase
b. decrease; decrease
c. increase; decrease
d. increase; increase
ANS: C
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
14. 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:
a. pegged intervention.
b. indirect intervention.
c. nonsterilized intervention.
d. sterilized intervention.
e. A and D
ANS: C
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
15. If the Fed desires to weaken the dollar without affecting the dollar money supply, it should:
a. exchange dollars for foreign currencies, and sell some of its existing Treasury security
holdings for dollars.
b. exchange foreign currencies for dollars, and sell some of its existing Treasury security
holdings for dollars.
c. exchange dollars for foreign currencies, and buy existing Treasury securities with dollars.
d. exchange foreign currencies for dollars, and buy existing Treasury securities with dollars.
ANS: A
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
16. Which of the following is an example of direct intervention in foreign exchange markets?
a. lowering interest rates.
b. increasing the inflation rate.
c. exchanging dollars for foreign currency.
d. imposing barriers on international trade.
ANS: C
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
17. A strong dollar places ____ pressure on inflation, which in turn places ____ pressure on the dollar.
a. upward; upward
b. downward; upward
c. upward; downward
d. downward; downward
ANS: B
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Comprehension
18. The Fed may use a stimulative monetary policy with least concern about causing inflation if the
dollar's value is expected to:
a. remain stable.
b. strengthen.
c. weaken.
d. none of the above will have an impact on inflation.
ANS: B
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
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.
a. upward; downward; upward
b. upward; downward; downward
c. upward; upward; downward
d. downward; upward; upward
e. downward; downward; upward
ANS: C
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
20. The euro is the currency:
a. adopted in all western European countries as of 1999.
b. adopted in all eastern European countries as of 1999.
c. adopted in all European countries as of 1999.
d. none of the above
ANS: D
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
21. The euro has not been adopted by:
a. Slovenia.
b. the U.K.
c. Germany.
d. France.
ANS: B
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
22. The exchange rate mechanism (ERM) refers to the method of linking ____ currencies to each other
within boundaries.
a. Latin American
b. European
c. Asian
d. North American
ANS: B
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
23. Countries that have adopted the euro must agree on a single ____ policy.
a. monetary
b. fiscal
c. worker compensation
d. foreign relations
ANS: A
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
24. Countries that have adopted the euro tend to have very similar ____.
a. interest rates
b. inflation rates
c. income tax rates
d. budget deficits
ANS: A
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
25. The risk-free interest rates among countries that have adopted the euro should:
a. not necessarily be similar to risk-free rates in other countries.
b. equal the U.S. risk-free rate.
c. equal the risk-free rates in other European countries.
d. equal the risk-free rates in Asian countries.
ANS: A
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
26. Which of the following is true regarding the euro?
a. Exchange rate risk between participating European currencies is completely eliminated,
encouraging more trade and capital flows across European borders.
b. It allows for more consistent economic conditions across countries.
c. It prevents each country from conducting its own monetary policy.
d. All of the above are true.
ANS: D
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
27. It has been argued that the exchange rate can be used as a policy tool. Assume that the U.S.
government would like to reduce unemployment. Which of the following is an appropriate action
given this scenario?
a. Weaken the dollar
b. Strengthen the dollar
c. Buy dollars with foreign currency in the foreign exchange market
d. Implement a tight monetary policy
ANS: A
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Easy
OBJ: INFM.MADU.15.06.04
STA: DISC.INFM.MADU.15.02
28. It has been argued that the exchange rate can be used as a policy tool. Assume that the U.S.
government would like to reduce inflation. Which of the following is an appropriate action given this
scenario?
a. Sell dollars for foreign currency
b. Buy dollars with foreign currency
c. Lower interest rates
d. None of the above
ANS: B
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Easy
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
29. To strengthen the dollar using sterilized intervention, the Fed would ____ dollars and simultaneously
____ Treasury securities.
a. buy; sell
b. sell; buy
c. buy; buy
d. sell; sell
ANS: C
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Easy
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
30. As foreign exchange activity has grown, a given degree of central bank intervention has become:
a. more effective.
b. more frequent.
c. less effective.
d. none of the above
ANS: C
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Easy
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
31. When using indirect intervention, a central bank is likely to focus on:
a. inflation.
b. interest rates.
c. income levels.
d. expectations of future exchange rates.
ANS: B
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
32. Which of the following countries was probably the least affected (directly or indirectly) by the Asian
crisis?
a. Thailand.
b. Indonesia.
c. Russia.
d. China.
e. Malaysia.
ANS: D
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.App.
STA: DISC.INFM.MADU.15.02
33. Which of the following is not true regarding Thailand?
a. Thailand was one of the slowest growing countries before the Asian crisis.
b. High levels of spending and low levels of saving placed upward pressure on prices of real
estate, products, and on Thailand's local interest rate.
c. Thailand's baht was linked to the dollar prior to July 1997, which made Thailand an
attractive site for foreign investors.
d. Thai banks provided many loans that were very risky in their attempt to make use of all of
their funds.
e. All of the above are true.
ANS: A
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.App.
STA: DISC.INFM.MADU.15.02
34. China's yuan is presently:
a. allowed to fluctuate freely without any central bank intervention.
b. allowed to fluctuate but with central bank intervention.
c. pegged to the dollar.
d. pegged to the euro.
ANS: B
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
35. During the period 1944-1971, the U.S. used a ____ system.
a. euro exchange rate
b. fixed
c. dirty float
d. flexible
ANS: B
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
36. Which of the following are examples of currency controls?
a. import restrictions.
b. prohibition of remittance of funds.
c. ceilings on granting credit to foreign firms.
d. all of the above
ANS: D
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
37. From a financial management perspective, which of the following is true regarding the introduction of
the Euro?
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.
ANS: C
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
38. Which of the following countries have not adopted the euro?
a. Germany
b. Italy
c. Switzerland
d. France
ANS: C
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
39. Which of the following are true about the Southeast Asian currency crisis?
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.
ANS: A
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.App.
STA: DISC.INFM.MADU.15.02
40. Under a fixed exchange rate system, U.S. inflation would have a greater impact on inflation in other
countries than it would under a freely floating exchange rate system.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
41. An advantage of a fixed exchange rate system is that governments are not required to constantly
intervene in the foreign exchange market to maintain exchange rates within specified boundaries.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
42. Under the system known as the "dirty" float, official boundaries for the exchange rate exist, but they
are wider than they are under a fixed exchange rate system.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
43. Under a pegged exchange rate system, the home currency's value is pegged to a foreign currency.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
KEY: Bloom's: Knowledge
44. 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.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
45. The European countries conforming to the euro are completely insulated from movements in the euro's
value with respect to other currencies.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
46. The establishment of the euro allows for more consistent economic conditions across countries but
eliminates the power of any individual European country to solve local economic problems with its
own unique monetary policy.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
47. The Asian crisis is generally believed to have started in Japan.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.App.
STA: DISC.INFM.MADU.15.02
48. A possible reason why China was less affected by the Asian crisis is that its government exerts more
influence on private enterprise than the governments of other Asian countries.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Moderate
OBJ: INFM.MADU.15.06.App.
STA: DISC.INFM.MADU.15.02
49. Currency devaluation can boost a country's exports, but currency revaluation can increase foreign
competition.
a. True
b. False
ANS: T
PTS: 1
DIF: Easy
OBJ: INFM.MADU.15.06.01
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
STA: DISC.INFM.MADU.15.02
50. Market forces are the determinant of exchange rates in a freely floating exchange rate system.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
51. If a government wishes to stimulate its economy in the form of increased foreign demand for its
country's products, it could attempt to weaken its currency.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Easy
OBJ: INFM.MADU.15.06.04
STA: DISC.INFM.MADU.15.02
52. In a sterilized exchange rate arrangement, a country's home currency value is pegged to a foreign
currency or to some unit of account.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.03
53. The Bank of England is responsible for setting the monetary policy for the European countries
participating in the euro.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
54. The Fed's indirect method of intervention is to trade dollars for or against other currencies.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
55. China is commonly criticized for keeping the yuan's value at superficially high levels.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
56. The Bretton Woods Agreement created a system under which exchange rates are determined by market
forces without intervention by various governments.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
57. Nonsterilized intervention is intervention by a central bank in the foreign exchange market without
adjusting for the change in money supply.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
58. The euro is pegged to other currencies of European countries that have not adopted the euro.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
59. The Smithsonian Agreement was an agreement to allow currencies of major countries to float without
any barriers.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
60. An example of indirect intervention by the Bank of Japan would be for the Bank of Japan to use
interest rates to increase the value of the yen vs. the dollar.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Application
DIF: Easy
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
61. A strong home currency can harm exports; exporters typically benefit from a weaker home country
currency.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.04
STA: DISC.INFM.MADU.15.02
62. An advantage of freely floating exchange rates is that a country with floating exchange rates is more
insulated from unemployment problems in other countries.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
63. All European countries now use the euro as their currency.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
64. A country with a currency board does not have control over its local interest rates.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
65. Dollarization refers to the replacement of local currency with U.S. dollars.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
66. A country with fixed exchange rates often faces constraints on growth.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
67. The Bretton Woods Agreement called for the establishment of a single European currency.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
68. The European Central Bank is responsible for monetary policy in all countries that adopted the euro as
its currency.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
69. A currency peg is insulated from economic or political conditions, such that the exchange rate in the
market will only change if the country's government breaks the peg and sets a new exchange rate.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
70. 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.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
71. Normally, when a pegged exchange rate is broken because of a crisis in that country, there is
downward pressure on the local currency of that country.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
72. Which one of the following is a disadvantage of a fixed exchange rate system:
a. Importers are insulated from the risk that the currency will appreciate over time.
b. Management of an MNC is less difficult.
c. The government might change the value of the currency.
d. Exporters are insulated from the risk that the currency will depreciate over time.
ANS: C
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
73. The Smithsonian Agreement called for a devaluation of the U.S. dollar by about ____ percent.
a. 2.25
b. 6
c. 10
d. 8
ANS: D
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
74. Which of the following did not occur as a result of Bretton Woods Agreement?
a. Each currency was valued in terms of gold.
b. Values of all currencies were fixed with respect to each other.
c. Currencies were allowed to fluctuate no more than 1% above or below the initially set
rates.
d. The United States experienced no balance-of-trade deficits.
ANS: D
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
75. Assume that Japan and the United States frequently trade with each other. Under the freely floating
exchange rate system, high inflation in the U.S. will place ____ pressure on Japanese yen, ____ the
amount of Japanese yen available for sale, and result in ____ inflation in Japan.
a. upward; reduce; unchanged
b. upward; increase; higher
c. downward; reduce; unchanged
d. downward; increase; higher
ANS: A
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Application
DIF: Moderate
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
76. Which one is not a disadvantage of a freely floating exchange rate system?
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.
ANS: C
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
77. A "dirty" float represents a system of:
a. freely floating exchange rates.
b. fixed exchange rates.
c. floating exchange rates, but the central bank can manipulate the currency.
d. fixed exchange rates, but the central bank can manipulate the currency.
ANS: C
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
78. If a U.S. firm plans to frequently purchases goods from Hong Kong over the next several years, it does
not have to worry about exchange rate risk.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.App.
STA: DISC.INFM.MADU.15.02
79. If the French government wants to decrease inflation in France, it will exchange foreign currency for
euros.
a. True
b. False
ANS: F
PTS: 1
DIF: Easy
OBJ: INFM.MADU.15.06.03
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
STA: DISC.INFM.MADU.15.02
80. The European Central Bank is located in:
a. London.
b. Denmark.
c. Luxembourg.
d. Frankfurt.
ANS: D
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
81. Which of the following is not true regarding the eurozone?
a. Members cannot set unique monetary policy individually.
b. Members cannot apply their own fiscal policies.
c. Members have to agree on the ideal monetary policy.
d. Its creation allowed for greater political union among its members.
ANS: B
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
82. Assuming no credit risk, the interest rates among countries in the eurozone should be similar.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
83. Which of the following is not a reason for devaluation of a currency?
a. high inflation.
b. to reduce balance-of-trade deficit.
c. to decrease the amount of imports.
d. high unemployment.
ANS: A
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
84. Which of the following is the most likely reason for revaluation of a currency?
a. To reduce inflation.
b. To stimulate the local economy.
c. To increase the amount of exports.
d. To increase balance-of-trade surplus.
ANS: A
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
85. To weaken the dollar using sterilized intervention, the Fed will ____ U.S. dollars and simultaneously
____ Treasury securities.
a. buy; sell
b. sell; sell
c. sell; buy
d. buy; sell
ANS: B
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
86. The monetary policy implemented by the European Central Bank always results in favorable effects on
all countries in the eurozone.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
87. If the Fed desires to strengthen the dollar without affecting the dollar money supply, it should:
a. exchange dollars for foreign currencies, and sell some of its existing Treasury security
holdings for dollars.
b. exchange foreign currencies for dollars, and sell some of its existing Treasury security
holdings for dollars.
c. exchange dollars for foreign currencies, and buy existing Treasury securities with dollars.
d. exchange foreign currencies for dollars, and buy existing Treasury securities with dollars.
ANS: D
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
88. Assume that the Fed intervenes by exchanging dollars for euros in the foreign exchange market. This
will cause an ____ U.S. dollars and an ____ euros.
a. inward shift in demand for; outward shift in supply of
b. inward shift in demand for; inward shift in supply of
c. outward shift in supply of; outward shift in demand for
d. outward shift in supply of; inward shift in demand for
ANS: C
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
89. If the Fed ____ the interest rates when inflationary expectations remain unchanged, the most likely
result is that the value of dollar will ____ and the economy may ____.
a. increases; appreciate; weaken
b. decreases; appreciate; weaken
c. increases; depreciate; strengthen
d. decreases; appreciate; strengthen
ANS: A
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
90. A central bank may attempt to stimulate a stagnant economy by weakening the value of the currency.
a. True
b. False
ANS: T
PTS: 1
DIF: Moderate
OBJ: INFM.MADU.15.06.04
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
STA: DISC.INFM.MADU.15.02
91. A common way to reduce inflation is to weaken the value of the domestic currency.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.04
STA: DISC.INFM.MADU.15.02
92. If a speculator expects that the Fed will intervene by exchanging dollars for Japanese yen, she would
most likely ____ to capitalize on this intervention.
a. purchase yen put options
b. sell yen futures contracts
c. purchase yen call options
d. buy U.S. Treasury bonds
ANS: C
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Application
DIF: Moderate
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
93. If a speculator expects that the Fed will intervene by exchanging euros for U.S. dollars, she would
most likely ____ to capitalize on this intervention.
a. purchase euro put options
b. purchase euro futures contracts
c. purchase yen call options
d. sell U.S. Treasury bonds
ANS: A
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Application
DIF: Moderate
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
94. If the Fed decides to weaken the dollar utilizing unsterilized intervention, it should be aware that this
action may backfire because it will increase money supply and thus increase inflation.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
95. 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.
a. downward; upward; upward
b. downward; downward; upward
c. upward; upward; downward
d. upward; downward; upward
ANS: B
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
96. The currency of Country X is pegged to the currency of Country Y. Assume that Country Y's currency
appreciates against the currency of Country Z. It is likely that Country X will export ____ to Country
Z and import ____ from Country Z.
a. more; more
b. more; less
c. less; less
d. less; more
ANS: D
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Application
DIF: Moderate
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
97. If the Bank of England announces that it will start to frequently intervene in order to reduce the
fluctuations of British pound, the premiums on call and put options will increase.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
98. One of the best-known pegged exchange rate arrangements that was established by several European
countries in April 1972 and was difficult to maintain is called the:
a. European Monetary System (EMS).
b. snake agreement.
c. Maastricht Treaty.
d. European Union.
ANS: B
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.02
STA: DISC.INFM.MADU.15.02
99. Direct intervention is usually more effective than indirect intervention.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Easy
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
100. Currency devaluations have the potential to reduce unemployment, while currency revaluations have
the potential to reduce inflation.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Easy
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
101. Under a fixed exchange rate system, U.S. inflation would have a greater impact on inflation in other
countries than it would under a freely floating exchange rate system.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
102. An advantage of a fixed exchange rate system is that governments are not required to constantly
intervene in the foreign exchange market to maintain exchange rates within specified boundaries.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
103. In a freely floating exchange rate system, high U.S. inflation rate may be magnified. This is because
the depreciation of the dollar would result in more expensive foreign imports, thus reducing foreign
competition.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
104. Under the system known as the "dirty" float, official boundaries for the exchange rate exist, but they
are wider than they are under a fixed exchange rate system.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
105. In order to stimulate a stagnant economy, a government operating under a managed float may attempt
to weaken its currency.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
106. Assume the Fed desires to strengthen the dollar. If it buys dollars and simultaneously buys Treasury
securities, this is an example of sterilized intervention.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
107. Using indirect intervention, the Fed attempts to affect the dollar's value indirectly by influencing the
factors that determine it, such as interest rates.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Easy
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
108. While a weak currency can reduce unemployment at home, it can also lead to higher inflation, as local
companies are better able to raise prices.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.04
STA: DISC.INFM.MADU.15.02
109. While a strong currency is a possible cure for high inflation, it may cause higher unemployment due to
the attractive foreign prices that result from a strong home currency.
a. True
b. False
ANS: T
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.04
STA: DISC.INFM.MADU.15.02
110. Countries usually do not have difficulty maintaining a pegged exchange rate, even when they are
experiencing major political or economic problems.
a. True
b. False
ANS: F
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
111. Which of the following is not true regarding the Mexican peso crisis?
a. Mexico encouraged firms and consumers to buy an excessive amount of imports because
the peso was stronger than it should have been.
b. Many speculators based in the U.S. speculated on the potential decline in the peso by
investing their funds in Mexico.
c. In December of 1994, the central bank of Mexico allowed the peso to float freely.
d. The central bank of Mexico increased interest rates after the peso declined in value in
order to prevent investors from withdrawing their investments in Mexico's debt securities.
e. All of the above are true.
ANS: B
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Moderate
OBJ: INFM.MADU.15.06.01
STA: DISC.INFM.MADU.15.02
112. Which of the following is true regarding the euro?
a. Exchange rate risk between participating European currencies is completely eliminated,
encouraging more trade and capital flows across European borders.
b. It allows for more consistent economic conditions across countries.
c. It prevents each country from conducting its own monetary policy.
d. All of the above are true.
ANS: D
PTS: 1
DIF: Easy
OBJ: INFM.MADU.15.06.02
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
STA: DISC.INFM.MADU.15.02
113. Among the reasons for government intervention are:
a. to smooth exchange rate movement.
b. to establish implicit exchange rate boundaries.
c. to respond to temporary disturbances.
d. all of the above
ANS: D
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Easy
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
114. Which of the following is not true regarding government intervention?
a. Under the direct method of intervention, an appreciation of the dollar would be
accomplished by exchanging dollars for foreign currencies.
b. Under nonsterilized intervention, the Fed would intervene in the foreign exchange market
without adjusting the money supply.
c. Under sterilized intervention, the Fed would intervene simultaneously in the foreign
exchange and Treasury markets.
d. Under indirect intervention, the Fed would attempt to affect the dollar's value by indirectly
influencing the factors that determine it, such as interest rates.
e. All of the above are true.
ANS: A
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Knowledge
DIF: Moderate
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
115. Assume that the dollar has been consistently depreciating over a long period. The Fed decides to
counteract this movement by intervening in the foreign exchange market using sterilized intervention.
The Fed would
a. buy dollars with foreign currency and simultaneously sell Treasury securities for dollars.
b. buy dollars with foreign currency and simultaneously buy Treasury securities with dollars.
c. sell dollars for foreign currency and simultaneously sell Treasury securities for dollars.
d. sell dollars for foreign currency and simultaneously buy Treasury securities with dollars.
e. none of the above
ANS: B
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
116. Assume that the dollar has been consistently appreciating over a long period. The Fed decides to
counteract this movement by intervening in the foreign exchange market using nonsterilized
intervention. The Fed would
a. buy dollars with foreign currency and simultaneously sell Treasury securities for dollars.
b. buy dollars with foreign currency and simultaneously buy Treasury securities with dollars.
c. sell dollars for foreign currency and simultaneously sell Treasury securities for dollars.
d. sell dollars for foreign currency and simultaneously buy Treasury securities with dollars.
e. none of the above
ANS: E
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
117. Which of the following is an appropriate form of indirect intervention?
a.
b.
c.
d.
To strengthen the dollar, the Fed increases the money supply to lower interest rates.
To weaken the dollar, the Fed reduces the money supply to increase interest rates.
To strengthen the dollar in the long run, the Fed attempts to reduce U.S. inflation.
To weaken the dollar in the long run, the Fed attempts to reduce U.S. inflation.
ANS: C
PTS: 1
NAT: BUSPROG.INFM.MADU.15.03
KEY: Bloom's: Comprehension
DIF: Moderate
OBJ: INFM.MADU.15.06.03
STA: DISC.INFM.MADU.15.02
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