chp18

Question 1

what are foreign exchange interventions?

Answer 1

manipulating the exchange rates of currencies through buying and selling them

Question 2

what results from foreign exchange interventions?

Answer 2

Buying money increases its demand, and increases its exchange rate or price of it in terms of foreign currency

Question 3

international reserves

Answer 3

amount of foreign currency held by the Federal Reserve or central banking authority

Question 4

unsterilised foreign exchange intervention

Answer 4

a form of foreign exchange intervention by which the central bank allows the monetary base to be affected by a purchase or sale of its domestic
currency

Question 5

unsterilised foreign exchange intervention - why does the monetary base fluctuate?

Answer 5

it involves no action by Federal Reserve, so it’s not normalised by open market operations

Question 6

sterilised foreign exchange intervention

Answer 6

a form of foreign exchange intervention by which the central bank allows the monetary base to be normalized by a purchase or sale of its domestic
currency through open market operations

Question 7

balance of payments

Answer 7

tracking and accounting for international movements of funds

Question 8

name the 2 accounts

Answer 8

current and financial

Question 9

what do current and financial accounts both show?

Answer 9

shows international trasnactions

Question 10

what’s the difference between current and financial accounts?

Answer 10

current - shows international transactions involving the trade
balance, net investment income, and transfers

financial - shows international transactions involving asset
purchases and sales

Question 11

trade balance

Answer 11

the difference between imports and exports for a country in a given year

Question 12

United States exports $800 billion worth of goods and services in a year,
and it imports $900 billion worth of goods and services, then it has a trade balance of…?

Answer 12

$100 billion. This is a $100 billion trade deficit.

Question 13

fixed exchange rate regime

Answer 13

tying the value of one currency to that of another or is constant

Question 14

anchor currency

Answer 14

a currency by which other currencies set their value to

Question 15

floating exchange rate regime

Answer 15

value of a currency can deviate over time, increasing or decreasing in value

Question 16

managed/”dirty” float

Answer 16

countries manipulate their exchange rates through buying and selling foreign assets

Question 17

how would the US use managed/”dirty” float to appreciate the dollar?

Answer 17

it will sell its holdings of foreign currency reserves

Question 18

gold standard

Answer 18

the value of a currency could be fixed or set to the price of gold, making exchange rates of currencies constant or relatively stable over time

Question 19

gold standard no longer exists in US. what was it displaced by?

Answer 19

fiat money

Question 20

Bretton Woods System

Answer 20

a short-lived (1945-1971) monetary system by which the U.S. dollar was
readily convertible into gold

Question 21

International Monetary Fund

year
members
purpose
who do they help

Answer 21

an organization established in 1945

includes 180 members

sets rules for exchange rates

helps countries experiencing financial hardship with loans

Question 22

world bank

Answer 22

an organization which provides long-term loans to countries for the purpose of capital investment and economic development

Question 23

world trade organisation (WTO)

Answer 23

an organization which monitors trading relations (involving tariffs and quotas) between countries

Question 24

Which international monetary institution was created in 1945, has 180 members, set exchange rate rules, and helps countries with loans?

Answer 24

IMF

Question 25

Which international monetary institution provides long-term loans to countries for the purpose of capital investment and economic development?

Answer 25

world bank

Question 26

which international monetary institution monitors tariffs and quotas between countries

Answer 26

WTO

Question 27

Devaluation

Answer 27

the resetting of a currency’s value to a lower level than where it was originally

Question 28

revaluation

Answer 28

the resetting of a currency’s value to a higher level than where it was originally

Question 29

speculative attack

Answer 29

intentionally purchasing a strong foreign currency or selling a weak foreign currency

Question 30

what does a speculative attack cause?

Answer 30

drastic change in a currency’s exchange rate

Question 31

policy trilemma

Answer 31

the inability to pursue successful policies simultaneously to affect free capital mobility, a fixed change rate, and independent monetary policy

Question 32

what is the policy trilemma sometimes called?

Answer 32

the impossible trinity

Question 33

monetary union

Answer 33

the banding together of countries for the purpose of maintaining a unified
currency

Question 34

example of monetary union

Answer 34

countries that use the Euro

Question 35

seignorage

Answer 35

issuing new currency by a government and increasing revenue in the process

Question 36

consequence of a seignorage

Answer 36

increased inflation