Government policies toward the foreign exchange market fall into two broad categories

Multiple Choice

• Policies about who may use the foreign exchange market and policies about who may not use the foreign exchange market.
• Policies dealing with who can use the exchange rate and for what purposes and policies regulating the amount of currency in circulation.
• Policies dealing with exchange ratevalues and policies dealing with who may use the market and for what purposes.
• Policies fixing the country's exchange rate and policies dealing with who may use foreign exchange.

When a fixed exchange rate is adjusted often according to a set of indicators, the exchange rate is considered to be a(n)

Multiple Choice

• disequilibrium rate.
• crawling peg.
• unstable peg.
• sliding rate.

If a country can easily borrow through official channels by issuing assets that will be held officially by the central banks of other countries, then the borrowing country's currency is considered to be a

Multiple Choice

• reserve currency.
• pegged currency.
• gold standard.
• vehicle currency.

Which of the following is NOT a way for a monetary authority to try to defend a fixed exchange rate?

Multiple Choice

• Impose exchange controls to alter the supply and demand of the country's currency in the foreign exchange market.
• Buy and sell currencies in the foreign exchange market to alter the supply-demand situation of the fixed currency.
• Join a free-trade area to stabilize the value of the currency in the foreign exchange market.
• Alter domestic interest rates to influence short-term international capital flows.

Which of the following statements is true?

Multiple Choice

• Currencies whose prices are fixed to the same commodity would ensure that arbitrage will not work and exchange rates will be floating.
• The special drawing right (SDR) is a basket of currencies made up of U.S. dollars, euros, British pounds, Chinese yuan, and Japanese yen.
• A country maintains a floating exchange-rate value to weaken the international value of its currency.
• Today, only China and Switzerland have currencies fixed to gold.