281. If the exchange rate is above the equilibrium level then in a floating exchange rate system:
A. There is excess demand and the exchange rate should fall
B. There is excess supply and the exchange rate should fall
C. There is excess demand and the exchange rate should rise
D. There is excess supply and the exchange rate should rise
Answer
B. There is excess supply and the exchange rate should fall
282. If the exchange rate is below the equilibrium level then in a floating exchange rate system:
A. There is excess demand and the exchange rate should fall
B. There is excess supply and the exchange rate should fall
C. There is excess demand and the exchange rate should rise
D. There is excess supply and the exchange rate should rise
Answer
C. There is excess demand and the exchange rate should rise
283. A depreciation of a currency occurs when:
A. The value of the currency falls
B. The value of the currency increases
C. Inflation falls
D. The balance of payments improves
Answer
A. The value of the currency falls
284. An appreciation of the currency is likely to occur if:
A. Domestic interest rates fall
B. There is an increase in demand for imports
C. There is an increase in demand for exports
D. There is an increase in the balance of payments deficit
Answer
C. There is an increase in demand for exports
285. If the central bank purchases assets, it will result in:
A. An increase in the money supply.
B. An increase in the central bank’s net worth.
C. A decline in the money supply.
D. A decline in the central bank’s net worth.
Answer
A. An increase in the money supply.
286. If there is a decline in output, to keep the exchange rate fixed, the central bank has to:
A. Purchase foreign assets.
B. Purchase domestic assets.
C. Sell domestic assets.
D. Sell foreign assets.
Answer
D. Sell foreign assets.
287. What is the effect of an increase in taxes under fixed exchange rates and perfect assetsubstitutability in the short run?
A. An increase in output and no change in interest rates.
B. A decline in output and interest rates.
C. A decline in output and no change in interest rates.
D. An increase in output and interest rates.
Answer
A. An increase in output and no change in interest rates.
288. What is the effect of a currency devaluation under fixed exchange rates in the short run?
A. A decline in output.
B. An increase in imports.
C. A decline in foreign reserves.
D. An increase in exports.
Answer
D. An increase in exports.
289. If a respectable source speculates that there is a possibility of devaluation:
A. Output will increase.
B. There will be a net private capital outflow.
C. The central bank’s foreign reserves will increase.
D. Domestic interest rates will decline.
Answer
B. There will be a net private capital outflow.
290. Under imperfect asset substitutability:
A. Central banks cannot keep the exchange rate fixed.
B. Domestic interest rates should be equal to foreign interest rates.
C. Central banks cannot affect money supply.
D. Sterilized intervention affects money supply.
Answer
D. Sterilized intervention affects money supply.
291. Which of the following is NOT true about the reserve currency standard?
A. The currency to which the rates are fixed should be the same as the currency the central bank holds.
B. Exchange rates are all fixed.
C. The reserve center can use monetary policy to keep exchange rates fix
Answer
C. The reserve center can use monetary policy to keep exchange rates fix
292. Which of the following is NOT true about the gold standard?
A. Central banks have to hold gold as reserve assets.
B. It does not lead to monetary policy spillovers.
C. Exchange rates are all fix
Answer
B. It does not lead to monetary policy spillovers.
293. Which of the following is NOT a motive for international asset trade?
A. Capital controls
B. Intertemporal trade
C. International portfolio diversification
D. Tax avoidance
Answer
A. Capital controls
294. Which of the following is NOT a part of a “policy trilemma”?
A. International trade policy
B. Capital controls
C. Monetary policy
D. Exchange rate regime
Answer
A. International trade policy
295. Which of the following is NOT a type of offshore bank?
A. Agency office
B. Subsidiary bank
C. Foreign branch
D. Investment bank
Answer
D. Investment bank
296. Which of the following is an example of “Eurocurrency” trade?
A. Trade of euros in Europe
B. Trade of dollars for euros anywhere
C. Trade of dollars in Europe
D. Intervention by the ESCB in the euro market
Answer
C. Trade of dollars in Europe
297. What are “Eurobanks”?
A. Banks that accept Eurocurrency deposits
B. Banks located in Europe
C. European-owned banks in the U.S.
D. Banks that accept deposits in euros
Answer
A. Banks that accept Eurocurrency deposits
298. Which of the following is NOT true about the IBFs?
A. They make loans to foreigners
B. They are not subject to taxes
C. They are only investment banks
D. They accept deposits from foreigners
Answer
C. They are only investment banks
299. What institution reduces the risk of bank runs in the U.S.?
A. FDIC
B. Federal Reserve System
C. Congress
D. S&Ls
Answer
A. FDIC
300. The Basel Committee:
A. Coordinates monetary policy among 11 countries.
B. Provides international deposit insurance.
C. Provides supervision of the banks trading internationally.
D. Provides LLR services to international banks.
Answer
C. Provides supervision of the banks trading internationally.
301. Which of the following is true regarding the capital market development since the 1970s?
A. The extent of intertemporal trade was larger than theory predicts.
B. Onshore-offshore interest rate differentials were too large.
C. The extent of the international portfolio diversification was smaller than theory predicts.
D. The role of emerging markets declined over time.
Answer
C. The extent of the international portfolio diversification was smaller than theory predicts.
302. Which one of the following statements is the most accurate?
A. A devaluation occurs when the central bank lowers the domestic currency price of foreign currency, E, and a revaluation occurs when the central bank raises E.
B. A devaluation occurs when the central bank raises the domestic currency price of foreign currency, E, and a revaluation occurs when the central bank lowers E.
C. Devaluation occurs when the domestic currency price of foreign currency, E, is raised, and a revaluation occurs when E is lower
Answer
B. A devaluation occurs when the central bank raises the domestic currency price of foreign currency, E, and a revaluation occurs when the central bank lowers E.
303. Which one of the following statements is the most accurate?
A. Depreciation is a rise in E when the exchange rate is fixed, and devaluation is a rise in E when the exchange rate floats.
B. Depreciation is a decrease in E when the exchange rate floats, and devaluation is a rise in E when the exchange rate is fixed.
C. Depreciation is a rise in E when the exchange rate floats, and devaluation is a rise in E when the exchange rate is fix
Answer
C. Depreciation is a rise in E when the exchange rate floats, and devaluation is a rise in E when the exchange rate is fix
304. Which one of the following statements is the most accurate?
A. Appreciation is a rise in e when the exchange rate floats, and revaluation is a fall in e when the exchange rate is fixed.
B. Appreciation is a fall in e when the exchange rate floats, and revaluation is a fall in e when the exchange rate is fixed.
C. Appreciation is a fall in e when the exchange rate is fixed, and revaluation is a fall in e when the exchange rate is flexible.
D. Appreciation is a fall in e when the exchange rate floats, and revaluation is a rise in e when the exchange rate is fixed.
Answer
B. Appreciation is a fall in e when the exchange rate floats, and revaluation is a fall in e when the exchange rate is fixed.
305. Which one of the following statements is the most accurate?
A. Devaluation reflects a deliberate government decision.
B. Depreciation reflects a deliberate government decision.
C. Devaluation reflects a deliberate government decision, and depreciation is an outcome of government actions and market forces acting together.
D. Depreciation reflects a deliberate government decision, and devaluation is an outcome of government actions and market forces acting together.
Answer
C. Devaluation reflects a deliberate government decision, and depreciation is an outcome of government actions and market forces acting together.
306. Which one of the following statements is the most accurate?
A. Revaluation reflects an outcome of government actions and market forces acting together, and appreciation reflects a deliberate government decision.
B. Revaluation reflects a deliberate government decision, and appreciation is an outcome of government actions and market forces acting together.
C. Revaluation reflects a deliberate government decision, and appreciation is an outcome of government actions.
D. Revaluation and appreciation have the same meaning and the same causes.
Answer
B. Revaluation reflects a deliberate government decision, and appreciation is an outcome of government actions and market forces acting together.
307. Under fixed exchange rate, which one of the following statements is the most accurate?
A. Devaluation causes a decrease in output, a decrease in official reserves, and a contraction of the money supply.
B. Devaluation causes a rise in output, a rise in official reserves, and an expansion of the money supply.
C. Devaluation causes a rise in output and a rise in official reserves.
D. Devaluation causes a rise in output and an expansion of the money supply.
Answer
B. Devaluation causes a rise in output, a rise in official reserves, and an expansion of the money supply.
308. Under fixed exchange rate, which one of the following statements is the mostaccurate?
A. Devaluation causes a rise in output.
B. Devaluation causes a decrease in output.
C. Devaluation has no effect on output.
D. Devaluation causes a rise in output and a decrease in official reserves.
Answer
A. Devaluation causes a rise in output.
309. Under fixed exchange rate, which one of the following statements is the mostaccurate?
A. Devaluation causes a reduction of the money supply.
B. Devaluation has no effect on the stock of money.
C. Devaluation causes an expansion of the money supply.
D. Devaluation causes a reduction in output.
Answer
C. Devaluation causes an expansion of the money supply.
310. The main reason(s) why governments sometimes chose to devalue their currencies is (are):
A. Devaluation allows the government to fight domestic unemployment despite the lack of effective monetary policy.
B. Devaluation improves in the current account.
C. Devaluation increases foreign reserves held by the central bank.
D. All of the above.
Answer
D. All of the above.
311. At negative nominal interest rates, which one of the following statements is the most accurate?
A. People would find money strictly preferable to bonds.
B. People would find money strictly preferable to bonds and bonds therefore would be in excess supply.
C. People would find money strictly preferable to bonds and bonds therefore would be in excess dema
Answer
B. People would find money strictly preferable to bonds and bonds therefore would be in excess supply.
312. Which of the following exchange rate policies uses a target exchange rate, but allowsthe target to change?
A. fixed exchange rate
B. flexible exchange rate
C. crawling peg
D. moving target
Answer
C. crawling peg
313. Which among the following could be said to be an ‘Open Economy’?
A. A nation that follows the doctrine of Free-market and Laissez-faire economics
B. A nation that trades with other nations in goods and services and financial assets
C. An economy that operates without government intervention
D. None of the above
Answer
A. A nation that follows the doctrine of Free-market and Laissez-faire economics
314. The records of exports and imports in goods and services and transfer payments is known as
A. Current account
B. Budget surplus
C. Economic leakage
D. degree of openness
Answer
A. Current account
315. The ratio of foreign rates to domestic rates measured in the ‘same’ currency is known as:
A. Real exchange rate
B. Nominal exchange rate
C. Superfluous exchange rate
D. None of the above
Answer
A. Real exchange rate
316. Which among the following is taken as the real measure of a country’s international competitiveness?
A. Real exchange rate
B. Nominal exchange rate
C. Superfluous exchange rate
D. None of the above
Answer
A. Real exchange rate
317. When the exchange rate is determined by the market forces of demand and supply, it is known as :
A. Real exchange rate
B. Nominal exchange rate
C. Superfluous exchange rate
D. Floating exchange rate
Answer
D. Floating exchange rate
318. The Gold Standard was prevalent in the world from:
A. 15th century to 18th century
B. 9th century to 18th century
C. From 1870 till First World War
D. From 1670 till First World War
Answer
C. From 1870 till First World War
319. An increase in foreign income generally leads to:
A. increased exports, increased domestic output
B. decreased exports, increased domestic output
C. decreased exports, decreased domestic output
D. increased exports, decreased domestic output
Answer
A. increased exports, increased domestic output
320. What records a country’s transactions (made by individuals, firms and government bodies.) with the rest of the world?
A. Trade deficit
B. Capital Budget
C. Foreign imports
D. Balance of Payments or BoP
Answer
D. Balance of Payments or BoP
321. Under a fixed exchange rate system, a contractionary fiscal policy leads to a worsening in a nation’s balance-of-payments position if the resulting:
A. Trade-account deficit more than offsets the capital-account surplus
B. Trade-account deficit more than offsets the capital-account deficit
C. Capital-account deficit more than offsets the trade-account surplus
D. Capital-account deficit more than offsets the trade-account deficit
Answer
C. Capital-account deficit more than offsets the trade-account surplus
322. Given a system of floating Exchange rates, falling income in the United States wouldtrigger:
A. An increase in the demand for imports and an increase in the demand for foreign currency
B. An increase in the demand for imports and a decrease in the demand for foreign currency
C. A decrease in the demand for imports and an increase in the demand for foreign currency
D. A decrease in the demand for imports and a decrease in the demand for foreign currency
Answer
D. A decrease in the demand for imports and a decrease in the demand for foreign currency
323. Under a system of floating Exchange rates, relatively low productivity and high inflation rates in the United States result in:
A. An increase in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciación in the dollar
B. An increase in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar
C. A decrease in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciation in thedollar
D. A decrease in the demand for foreign currency, an increase in the supply of foreign currency, and an appreciation in the dollar
Answer
A. An increase in the demand for foreign currency, a decrease in the supply of foreign currency, and a depreciación in the dollar
324. Which example of market expectations causes the dollar to appreciate against the yen?Expectations that the U.S. economy will have:
A. Faster economic growth tan Japan
B. Higher future interest rates than Japan
C. More rapid money supply growth tan Japan
D. Higher inflation rates than Japan
Answer
B. Higher future interest rates than Japan
325. Starting at the point of equilibrium between the money supply and the money demand, an increase in the domestic money supply causes the value of the home currency to:
A. Depreciate relative to other currencies
B. Appreciate relative to other currencies
C. Not change relative to other currencies
D. None of the above
Answer
A. Depreciate relative to other currencies
326. An Exchange rate is said to ___ when its short-run response to a change in marketFundamentals is greater than its long-run response. a
A. Overshoot
B. Undershoot
C. Depreciate
D. Appreciate
Answer
A. Overshoot
327. Concerning exchange-ratedetermination, “market fundamentals” include all of the Following except:
A. Monetary policy and fiscal policy
B. Profitability and riskiness of investments
C. Speculative opinión about future Exchange rates
D. Productivity changes affecting production costs
Answer
C. Speculative opinión about future Exchange rates
328. In the short run, Exchange rates respond tomarketforcessuch as:
A. Inflation rates
B. Expectations of future Exchange rates
C. Investment profitability
D. Government trade policy
Answer
B. Expectations of future Exchange rates
329. Long-run Exchange ratemovements are governed by all of the following except:
A. National productivity levels
B. Consumer tastes and preferences
C. Rates of inflation
D. Interest rate levels
Answer
D. Interest rate levels
330. That identical godos should cost the same in all nations, assuming tis costless to ship godos between nations and there are no barriers to trade, is a reflection of the:
A. Monetary approach to exchange-rate determination
B. Law of one price
C. Fundamentalist approach to exchange-ratedetermination
D. Exchange-rate-overshooting principle
Answer
B. Law of one price
331. The quantity of dollars supplied to the foreign Exchange market would increase if, other things remaining equal:
A. Incomerises in Canada
B. Manufacturing productivity increases in Canada
C. Prices decrease in Canada
D. Import tariffs rise in Canada
Answer
A. Incomerises in Canada
332. The Gold Standard was prevalent in the world from:
A. 15th century to 18th century
B. 9th century to 18th century
C. From 1870 till First World War
D. From 1670 till First WorldWar
Answer
C. From 1870 till First World War
333. When was the International Monetary Fund (IMF) set up?
A. 1912
B. 1214
C. 1942
D. 1944
Answer
D. 1944
334. If there is an increase in the trade deficit, there must be
A. An increase in the current account.
B. An increase in the capital account.
C. a decrease in the capital account.
D. An increase in net transfers in the current account.
Answer
B. An increase in the capital account.
335. To financelarge U.S. federal Budget deficits, the Federal Reserve increases the money supply. This leads to a surplus of dollars world wide. What happens to the U.S. dollar and trade?
A. The dollar appreciates in value, stimulating imports but curtailing exports.
B. The dollar appreciates in value, stimulating exports but curtailing imports.
C. The dollar depreciates in value, stimulating imports but curtailing exports.
D. The dollar depreciates in value, stimulating exports but curtailing imports.
Answer
D. The dollar depreciates in value, stimulating exports but curtailing imports.
336. The Federal Reserve raises interestrates. What happens in the foreign Exchange market?
A. Capital flows into the United States from other countries.
B. Capital flows out of the United States in to other countries.
C. The U.S. dollar depreciates.
D. Thereis no change in the foreign Exchange market
Answer
A. Capital flows into the United States from other countries.
337. If the dollar depreciates, this likely will cause
A. U.S. aggregate supply to rise in the short run and rise in the longrun.
B. U.S. aggregate supply to rise in the short run but fall in the longrun.
C. U.S. aggregate supply to fall in the short run and fall in the longrun.
D. U.S. aggregate supply to fall in the short run but rise in the longrun
Answer
B. U.S. aggregate supply to rise in the short run but fall in the longrun.
338. Ifthe U.S. dollar depreciates against the British pound, what is likely to happen?
A. British people will buy more American goods.
B. Americans will buy more British goods.
C. Americans will take more vacations in Britain.
D. British people will stop vacationing in Florida
Answer
A. British people will buy more American goods.
339. Exchange rates are flexible and fiscal policy is held constant. An expansionary monetary policywill be
A. Reinforce dbyan open economy.
B. Mitigated byan open economy.
C. Unaffected byan open economy.
D. Multiplied byan outflow of gold.
Answer
A. Reinforce dbyan open economy.
340. Exchange rates are flexible and fiscal policy is held constant. A Contractionary monetary policywill be
A. Reinforced byan open economy.
B. Mitigated byan open economy.
C. Unaffected byan open economy.
D. Multiplied bya noutflow of gold.
Answer
A. Reinforced byan open economy.
341. In a floating exchange rate system:
A. The government intervenes to influence the exchange rate
B. The exchange rate should adjust to equate the supply and demand of the currency
C. The Balance of Payments should always be in surplus
D. The Balance of payments will always equal the government budget
Answer
B. The exchange rate should adjust to equate the supply and demand of the currency
342. To prevent the external value of its currency rising the government could:
A. Sell its own currency
B. Increase interest rates
C. Buy its own currency
D. Sell foreign currency
Answer
A. Sell its own currency
343. A fall in the external value of a currency:
A. May cause an outward shift in the demand for the currency
B. May cause an inward shift in the supply for the currency
C. May lead to a movement along the demand curve for a currency
D. May be due to an increase in demand for the country’s export
Answer
C. May lead to a movement along the demand curve for a currency
344. Which of the following is NOT an argument for a country allowing its currency to float freely?
A. It allows the country to have sovereignty over its currency.
B. It enables a country to allow its currency to depreciate if it faces balance of payments deficits.
C. It gives greater certainty to firms involved in trade in terms of future revenues.
D. It enables a country to have greater control over its fiscal and monetary policies.
Answer
C. It gives greater certainty to firms involved in trade in terms of future revenues.
345. Starting from a position of internal and external balance, a reduction in aggregate demand will cause a current account ___
A. deficit
B. surplus
C. revaluation
D. devaluation
Answer
B. surplus
346. A rise in the real exchange rate will ___ the competitiveness of the domestic economy
A. increase
B. reduce
C. do nothing to
D. none
Answer
B. reduce
347. Within the circular flow of income, an increase in domestic income will tend to increase
A. exports
B. taxes
C. inventories
D. imports
Answer
D. imports
348. Perfect international capital mobility suggests that international funds will be responsive to ___ differentials
A. current account
B. interest rate
C. tax
D. price
Answer
B. interest rate
349. When capital mobility is perfect, interest rate differentials will tend to be offset by ___
A. price differences
B. balance of payments differences
C. current account differences
D. expected exchange rate changes
Answer
D. expected exchange rate changes
