Chapter 7 Quiz

8 October 2022
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question
Which of the following is the best example of a capital outflow from the United​ States? 1. The Tommy Hilfiger Company buys a controlling stake in the U.K. fashion label Temperley London 2. Ford sells its German subsidiary to French car company Peugeot​ Citroën 3. South​ Korea's Kia Motors takes over General Motors 4. French Bank BNP Parisbas sells stock in French fashion company Chanel to a German investment company
answer
1. The Tommy Hilfiger Company buys a controlling stake in the U.K. fashion label Temperley London
question
Which of the following countries was forced to unpeg its currency in the mid-1990s after investors began to distrust the abilities of its borrowers to repay foreign​ loans? China South Korea Taiwan Thailand
answer
Thailand
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Suppose a country's Balance of Payments Account shows a sharp decline in foreign-exchange reserves. This may indicate that the country has had significant trade surpluses the country's currency may soon appreciate the country's currency may soon depreciate the country has had small trade surpluses
answer
the country's currency may soon depreciate
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Why did the United States sell​ one-third of its gold reserves in​ 1971? Not enough paper currency on hand To maintain the​ dollar's value To lower the value of its SDRs Too much gold on hand
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To maintain the​ dollar's value
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If domestic ownership of foreign assets increases, this is considered a Current account credit Capital outflow Capital inflow Current account debit
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Capital outflow
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Assume we are operating under the gold standard. If the fixed exchange rate between the dollar and the pound is 5 and the dollar's par value is 10, what is the pound's par value? 500 0.5 2 50
answer
50
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Assume we are operating under the Bretton Woods system. The Australian dollar is pegged at US$2.50. What would happen if the Australian dollar appreciated to US$3.50? 1. The U.S. government would sell gold and foreign currency on the foreign exchange market 2. The Australian government would buy gold and foreign currency on the foreign exchange market 3. The Australian government would sell gold and foreign currency on the foreign exchange market 4. The U.S. government would buy gold and foreign currency on the foreign exchange market
answer
2. The Australian government would buy gold and foreign currency on the foreign exchange market
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Assume we are operating under the Bretton Woods system. The British pound is pegged at US$3.50. Which of the following would NOT occur if the British pound depreciates to US $3.395? 1. The British government could implement policies to attempt to increase the international demand for pounds 2. The British government could sell U.S. dollar reserves to buy pounds 3. The British government could sell gold to buy pounds 4. The British government could do nothing as long as the pound remains within 5% of the peg
answer
4. The British government could do nothing as long as the pound remains within 5% of the peg
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Which of the following accounts is used to make the Balance of Trade​ (BOP) account​ balance? Capital account Errors and omissions Official reserves account Current account
answer
Errors and omissions
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The current account records all of the following types of transactions EXCEPT ​short-term foreign portfolio investments exports and imports of services investment income gifts/unilateral​ transfers
answer
​short-term foreign portfolio investments
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The foundation of the Bretton Woods System rested on 1. Regulations enforced by the World Bank and International Monetary Fund 2. The European Economic Community's ability to add to the global supply of Eurodollars 3. The United States' ability to convert U.S. dollars into gold 4. An international agreement signed at the United Nations in New York after World War II ended
answer
3. The United States' ability to convert U.S. dollars into gold
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What is the Triffin Paradox? 1. Petrodollars being lent to developing countries 2. Although foreigners needed U.S. dollars in the Bretton Woods System, the more dollars they held, the less they trusted the system 3. A country's real and nominal interest rates always move in opposite directions even though exchange rates always move in the same direction 4. The investment mechanism that triggered the 2008 subprime meltdown
answer
2. Although foreigners needed U.S. dollars in the Bretton Woods System, the more dollars they held, the less they trusted the system
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All of the following are likely causes of the 1997 Asian Currency Crisis EXCEPT 1. Once it was clear Thailand could not control the value of its currency, financial panic set in 2. Thailand was unable to sufficiently reduce the value of its currency, the baht 3. Thailand was unable to sufficiently maintain the value of its currency, the baht 4. Thailand and other Asian nations had persistent and increasing trade deficits
answer
2. Thailand was unable to sufficiently reduce the value of its currency, the baht
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In 1997, investors began to distrust ________ ability to repay foreign loans and maintain value of its currency, leading to the _________. Thailand's; Asian Currency Crisis Japan's; Subprime Meltdown Vietnam's; International Debt Crisis China's; International Debt Crisis
answer
Thailand's; Asian Currency Crisis
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Using the gold standard eliminates the possibility that inflation can occur. True False
answer
false
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All of the following are potential problems with adopting the gold standard EXCEPT 1. Gold has no intrinsic value, so the system would be no more stable than our current system 2. The world's need more money may increase faster than the supply of gold 3. It would eliminate the government's ability to conduct monetary policy 4. It would eliminate the government's ability to conduct fiscal policy
answer
4. It would eliminate the government's ability to conduct fiscal policy