Maroeconomices

Only available on StudyMode
  • Download(s) : 80
  • Published : April 8, 2013
Open Document
Text Preview
Multiple Choice Questions
1. Which of the following are domestic assets for a country’s central bank? I. Debt securities
II. Loans to banks
III. Foreign currency assets
IV. Currency
V. Deposits to the central bank from banks
a. I
b. I and II
c. I, II, and III
d. I, II III, IV, and V
ANSWER:B
2. The sum of currency and deposits to the central bank from commercial banks is called: a. The money supply.
b. Domestic assets.
c. The monetary base.
d. Fractional reserves.
ANSWER:C
3. Official intervention in the foreign exchange market to defend a fixed exchange rate when the value of domestic currency is under downward pressure: a. Causes international reserve holdings to rise.

b. Has no impact on the domestic money supply.
c. Causes the domestic money supply to rise.
d. Causes the domestic money supply to fall.
ANSWER:D
4. If a country has an official settlements balance surplus so that the exchange rate value of the country's currency is experiencing upward pressure: I. The central bank must intervene to buy foreign currency and sell domestic currency. II. Its balance sheet will show an increase in official international reserve holdings. III. Its balance sheet will show an increase in its liabilities. a. I

b. I and II
c. II and III
d. I, II and III
ANSWER:D
5. __________ the money supply __________ domestic interest rates. a. Expanding; increases
b. Expanding; decreases
c. Contracting; decreases
d. Contracting; has no impact on
ANSWER:B
6. __________ the money supply causes capital __________.
a. Expanding; outflows
b. Expanding; inflows
c. Contracting; outflows
d. Contracting; to remain the same.
ANSWER:A
7. The initial impact of __________ the money supply __________ the Balance of Payments. a. Expanding; worsens
b. Expanding; improves
c. Contracting; worsens
d. Contracting; has no effect on
ANSWER:A
8. The initial impact of __________ the money supply __________ the Balance of Payments. a. Expanding; improves
b. Contracting; improves
c. Contracting; worsens
d. Contracting; has no impact on
ANSWER:B
9. Following an expansion of the money supply, a government committed to maintaining a fixed exchange rate must: a. Accept a surplus in their current account.
b. Not use sterilized intervention.
c. Intervene in the foreign exchange market to buy foreign exchange and sell domestic currency. d. Intervene in the foreign exchange market to sell foreign exchange and buy domestic currency. ANSWER:D

10. Which of the following is taking an action to reverse the effect of official intervention on the domestic money supply? a. Adjusting the official par value.
b. Implementing capital controls.
c. Sterilization.
d. “Playing by the rules of the game”.
ANSWER:C
11. If a country starts with a deficit in its official settlements balance, intervention to defend a fixed exchange rate will cause: a. The money supply to expand and the economy to grow.
b. The money supply to contract and the economy to contract. c. The money supply to grow and the economy to contract.
d. The money supply to contract and the economy to grow.
ANSWER:B
12. There are limits to the ability of monetary authorities to use sterilized intervention in the case of a deficit because: a. The central bank may be unwilling to increase its holdings of foreign currency. b. Pressure from foreign countries to allow the domestic currency to appreciate will lead to large losses. c. The central bank is limited in its ability to obtain foreign currency. d. There are no limits on the use of sterilized intervention. ANSWER:C

13. There are limits to the ability of monetary authorities to use sterilized intervention in the case of a surplus because: a. The central bank may be unwilling to increase its holdings of foreign currency. b. Pressure from foreign countries to allow the domestic currency to depreciate will lead to large losses. c. The central bank is limited in its ability to obtain foreign currency. d. There...
tracking img