the economics of money, banking, and financial markets

600 #

© 2014 Pearson Canada Inc.#

Economics of Money, Banking & Financial Markets, 5e (Mishkin)
Chapter 20 The International Financial System

20.1 Intervention in the Foreign Exchange Market

1. 
   

   A central bank ____ of domestic currency and corresponding ____ of foreign assets
   in the foreign exchange market leads to an equal decline in its international reserves and the
   monetary base, everything else held constant.
   A) sale; purchase
   B) sale; sale
   C) purchase; sale
   D) purchase; purchase
   Answer: C
   Diff: 1 Type: MC Page Ref: 493
   Skill: Recall
   Objective List: 20.1 Describe central bank intervention in the foreign exchange market and its
   effects on the money supply and the exchange rate

   
   


2. 
   

   A central bank ____ of domestic currency and corresponding ____ of foreign assets
   in the foreign exchange market leads to an equal increase in its international reserves and the
   monetary base, everything else held constant.
   A) sale; purchase
   B) sale; sale
   C) purchase; sale
   D) purchase; purchase
   Answer: A
   Diff: 1 Type: MC Page Ref: 493
   Skill: Recall
   Objective List: 20.1 Describe central bank intervention in the foreign exchange market and its
   effects on the money supply and the exchange rate

   
   


3. 
   

   Suppose that the Bank of Japan buys Canadian dollar assets with yen-denominated assets.
   Everything else held constant, this transaction will cause ____ in the foreign assets held by
   the Bank of Canada and ____ in the Canadian monetary base.
   A) an increase; an increase
   B) an increase; a decrease
   C) a decrease; an increase
   D) a decrease; a decrease
   Answer: A
   Diff: 1 Type: MC Page Ref: 493
   Skill: Applied
   Objective List: 20.1 Describe central bank intervention in the foreign exchange market and its
   effects on the money supply and the exchange rate