SOLVED

1) In a fixed exchange rate regime, the value of a currency is pegged to ________. A) an anchor currency. B) a currency board. C) a dirty float. D) an interest rate standard such as the Treasury bill rate in the U.S. 2) A dirty float is an example of ________. A) a fixed exchange rate system. B) a flexible exchange rate system. C) a revaluation D) a currency board. 3) Under a dirty float, the value of a country’s currency is ________. A) fixed. B) determined by the relevant currency board. C) influenced by the monetary authorities. D) unmanageable. 4) Under a fixed exchange rate system, if an appreciation in the value of a country’s currency develops, the monetary authorities must intervene by________. A) selling foreign exchange. B) buying and selling the domestic currency. C) raising the foreign interest rate D) buying foreign exchange. 5) Under a fixed exchange rate system, if an appreciation in the value of a country’s currency develops, the monetary authorities ________. A) will gain international reserves. B) buy the domestic currency in foreign exchange markets. C) sell foreign exchange in foreign exchange markets. D) will lose international reserves. 6) The devaluation of a currency develops once ________. A) an increase in the value of a country’s currency develops. B) a monetary authority runs out of international reserves. C) the level of domestic income falls. D) an increase in the domestic price level develops. 7) A central bank with a fixed exchange rate must, in response to an interest rate decline in the anchor-currency economy, ________ A) purchase the anchor currency B) sell the anchor currency C) convene a currency board D) revalue its currency 8) The impossible trinity includes ________. A) capital controls, a fixed exchange rate and an independent monetary policy. B) free capital mobility, a flexible exchange rate and an independent monetary policy. C) free capital mobility, a fixed exchange rate and an independent monetary policy. D) free capital mobility, a flexible exchange rate and constraints on monetary policy. 9) If a country chooses to establish fixed exchange rates and an independent monetary policy, it gives up the ability to have ________. A) free capital mobility. B) an independent fiscal policy. C) capital controls. D) an independent physical policy. 10) How might China benefit from adopting a flexible exchange rate policy?