TB6 - Chapter 6 Government Influence on Exchange Rates 1....

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Chapter 6 Government Influence on Exchange Rates 1. To force the value of the pound to appreciate against the dollar, the Federal Reserve should: A) sell dollars for pounds in the foreign exchange market and the European Central Bank (ECB) should sell dollars for pounds in the foreign exchange market. B) sell pounds for dollars in the foreign exchange market and the European Central Bank (ECB) should sell dollars for pounds in the foreign exchange market. C) sell pounds for dollars in the foreign exchange market and the European Central Bank (ECB) should not intervene. D) sell dollars for pounds in the foreign exchange market and the European Central Bank (ECB) should sell pounds for dollars in the foreign exchange market. ANSWER: A 2. A weak dollar is normally expected to cause: 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. ANSWER: D 3. A strong dollar is normally expected to cause: 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. ANSWER: B 4. To force the value of the British pound to depreciate against the dollar, the Federal Reserve should: A) sell dollars for pounds in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market. B) sell pounds for dollars in the foreign exchange market and the Bank of England should sell dollars for pounds in the foreign exchange market. C) sell pounds for dollars in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market. D) sell dollars for pounds in the foreign exchange market and the Bank of England should sell pounds for dollars in the foreign exchange market. ANSWER: C 190
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191 International Financial Management 5. Consider two countries that trade with each other, called X and Y. According to the text, inflation in Country X will have a greater impact on inflation in Country Y under the _______ system. Now, consider two other countries that trade with each other, called A and B. Unemployment in Country A will have a greater impact on unemployment in Country B under the _______ system. A) floating rate; fixed rate B) floating rate; floating rate C) fixed rate; fixed rate D) fixed rate; floating rate ANSWER: C 6. A primary result of the Bretton Woods Agreement was: 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%
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This note was uploaded on 01/25/2012 for the course ECON 102 taught by Professor Jones during the Spring '11 term at UVA.

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TB6 - Chapter 6 Government Influence on Exchange Rates 1....

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