Question 1

The European countries conforming to the euro are completely insulated from movements in the euro's value with respect to other currencies.

Accepted Answer

A) True 
 B)False

Question 2

From a financial management perspective, which of the following is true regarding the introduction of the Euro?

Accepted Answer

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.E) A) and B)
F) None of the above C

Question 3

Under a pegged exchange rate system, the home currency's value is pegged to a foreign currency.

Accepted Answer

A) True 
 B)False

Question 4

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.

Accepted Answer

A)   downward; upward; upward
B)   downward; downward; upward
C)   upward; upward; downward
D)   upward; downward; upwardE) B) and C)
F) None of the above

Question 5

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.

Accepted Answer

A)   more; more
B)   more; less
C)   less; less
D)   less; moreE) None of the above
F) All of the above

Question 6

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.

Accepted Answer

A) True 
 B)False

Question 7

Using indirect intervention, the Fed attempts to affect the dollar's value indirectly by influencing the factors that determine it, such as interest rates.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is not a reason for devaluation of a currency?

Accepted Answer

A)   high inflation.
B)   to reduce balance-of-trade deficit.
C)   to decrease the amount of imports.
D)   high unemployment.E) All of the above
F) None of the above

Question 9

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:

Accepted Answer

A)   pegged intervention.
B)   indirect intervention.
C)   nonsterilized intervention.
D)   sterilized intervention.
E)   A and DF) B) and E)
G) A) and D) C

Question 10

Which of the following is the most likely reason for revaluation of a currency?

Accepted Answer

A)   To reduce inflation.
B)   To stimulate the local economy.
C)   To increase the amount of exports.
D)   To increase balance-of-trade surplus.E) B) and D)
F) B) and C)

Question 11

A weak dollar is normally expected to cause:

Accepted Answer

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.E) B) and C)
F) A) and D)

Question 12

The European Central Bank is responsible for monetary policy in all countries that adopted the euro as its currency.

Accepted Answer

A) True 
 B)False

Question 13

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?

Accepted Answer

A)   Weaken the dollar
B)   Strengthen the dollar
C)   Buy dollars with foreign currency in the foreign exchange market
D)   Implement a tight monetary policyE) A) and B)
F) B) and C)

Question 14

If the Fed desires to strengthen the dollar without affecting the dollar money supply, it should:

Accepted Answer

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.E) All of the above
F) B) and C)

Question 15

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:

Accepted Answer

A)   European Monetary System (EMS) .
B)   snake agreement.
C)   Maastricht Treaty.
D)   European Union.E) C) and D)
F) None of the above

Question 16

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.

Accepted Answer

A) True 
 B)False  True

Question 17

A "dirty" float represents a system of:

Accepted Answer

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.E) C) and D)
F) A) and C)

Question 18

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?

Accepted Answer

A)   Sell dollars for foreign currency
B)   Buy dollars with foreign currency
C)   Lower interest rates
D)   None of the aboveE) A) and C)
F) None of the above

Question 19

A primary result of the Bretton Woods Agreement was:

Accepted Answer

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) .E) B) and C)
F) C) and D)

Question 20

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.

Accepted Answer

A) True 
 B)False

Exam 6: Government Influence on Exchange Rates

The European countries conforming to the euro are completely insulated from movements in the euro's value with respect to other currencies.

Correct AnswerverifiedShow Answer

From a financial management perspective, which of the following is true regarding the introduction of the Euro?

Correct AnswerverifiedC

Under a pegged exchange rate system, the home currency's value is pegged to a foreign currency.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Using indirect intervention, the Fed attempts to affect the dollar's value indirectly by influencing the factors that determine it, such as interest rates.

Correct AnswerverifiedShow Answer

Which of the following is not a reason for devaluation of a currency?

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedC

Which of the following is the most likely reason for revaluation of a currency?

Correct AnswerverifiedShow Answer

A weak dollar is normally expected to cause:

Correct AnswerverifiedShow Answer

The European Central Bank is responsible for monetary policy in all countries that adopted the euro as its currency.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

If the Fed desires to strengthen the dollar without affecting the dollar money supply, it should:

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedTrue

A "dirty" float represents a system of:

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

A primary result of the Bretton Woods Agreement was:

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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C

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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.

Correct Answer
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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.

Correct Answer
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C

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True

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