rExam Name MULTIPLE CHOICE Choose the one alternative that best completes the statement or answers the question 1 Under the Bretton Woods system the United States was designated as the 1 A fixed rate country B dollar standard country C par standard country D reserve currency country 2 Under a fixed exchange rate regime if a central bank must intervene to purchase the domestic currency by selling foreign assets then like an open market sale this action the monetary base and the money supply causing the interest rate on domestic assets to 2 A increases fall B reduces rise C increases rise D reduces fall 3 Under a fixed exchange rate regime if a country has an overvalued exchange rate then its central bank s attempt to keep its currency from will result in a of international reserves 3 A appreciating loss B depreciating gain C depreciating loss D appreciating gain 4 Under the Exchange Rate Mechanism of the European Monetary System when the British pound depreciated below its lower limit against the German mark the Bank of England was required to buy and sell thereby international reserves 4 A marks pounds gaining B marks pounds losing C pounds marks gaining D pounds marks losing 5 The Policy Trilemma states that a country or a monetary union can t pursue the following three policies at the same time 5 A capital control a flexible exchange rate and an independent monetary policy B free capital mobility a fixed exchange rate and an independent monetary policy C free capital mobility a flexible exchange rate and an independent monetary policy D capital control a fixed exchange rate and an independent monetary policy 6 A central bank of domestic currency and corresponding of foreign assets in the foreign exchange market leads to an equal increase in its international reserves and the monetary base everything else held constant 6 A sale purchase B sale sale C purchase purchase D purchase sale 7 When the central bank allows the purchase or sale of domestic currency to have an effect on the monetary base it is called 7 A a money neutral foreign exchange intervention B a sterilized foreign exchange intervention C an unsterilized foreign exchange intervention D an exchange rate feedback rule 8 Everything else held constant if a central bank makes an unsterilized of foreign assets then the domestic money supply will and the domestic currency will appreciate 8 A sale decrease B purchase increase C sale increase D purchase decrease 9 International reserves are 9 A reserves the Fed requires banks to hold against Eurodollar deposits B assets denominated in a foreign currency and used in international transactions C reserves the International Monetary Fund requires banks to hold if they wish to participate in the market for foreign exchange D central bank holdings of gold 10 When a central bank buys foreign assets 10 A its assets and liabilities rise by the same amount B the composition of its assets changes but its liabilities are unaffected C the composition of its liabilities changes but its assets are unaffected D its assets and liabilities fall by the same amount 1 D 2 B 3 C 4 D 5 B 6 A 7 C 8 A 9 B 10 A
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