Chapter Twenty: Chapter Quiz -- Exchange Rate Regimes and Crises

To complete the quiz, click on the radio button of your choice. When you are finished, hit the "Check Answers" button at the bottom of the page. Your answers will be graded and you will be given the percentage of correct answers as well as a list of right and wrong answers. Good Luck!

Answers are also provided.

  1. Which of the following is not a possible exchange rate regime?
    • flexible
      crawling peg

  2. Which of the following in an advantage of a fixed exchange rate regime?
    • more credibility to fight inflation
      trade imbalances rarely arise
      flexibility to conduct domestic monetary policy
      all of the above

  3. Which of the following are disadvantages to flexible exchange rate regimes?
    • exchange rate risk
      less credibility in fighting inflation
      the potential for loss on international transactions due to unexpected exchange rate movements
      all of the above
      loss of flexibility to conduct domestic monetary policy

  4. A government can support an overvalued currency by all of the following except
    • raising taxes for increased government expenditures
      buying the domestic currency by selling its stock of foreign currency
      draining foreign reserves
      raising domestic interest rates
      reducing the money supply

  5. The Mexican Peso Crisis of 1994 occurred because
    • the peso gradually became overvalued as Mexican inflation exceeded U.S. inflation.
      the Mexican central bank accumulated too many foreign reserves.
      the surge in capital inflows appreciated the Mexican peso.
      all of the above.
      none of the above.

  6. Sudden and severe exchange rate devaluations are harmful to the domestic citizens in part because
    • the currency can now purchase more imports, which leads to a reduction in domestic output.
      devaluation leads to deflation, which leads to an increase in the real value of the foreign debt.
      the central bank typically has to increase interest rates to stabilize the currency.
      none of the above.

  7. Monetary policy in an open economy
    • has a larger effect on output than in a closed economy.
      leads to a depreciation of the currency.
      increases net exports.
      decreases the balance in the capital account and increases the balance in the current account.
      all of the above.

  8. Each of the members of the EMU must do all the following except
    • relinquish control of domestic monetary policy.
      relinquish control of domestic fiscal policy.
      increase its vulnerability to recessions.
      destroy its domestic currency and use only the euro.

  9. A currency board puts a unit of domestic currency into circulation every time it accumulates another unit of the pegged foreign currency. A domestic bank run, therefore, is impossible.
    • True

  10. The Bretton Woods system was essentially a fixed exchange rate regime that failed partly because the U.S. dollar became severely overvalued.
    • True

Copyright © 1996-2006 - All Rights Reserved