Boston College International Finance Course Worksheet need help with those questions and need the accuracy to be above 80% They are all related to internat

Boston College International Finance Course Worksheet need help with those questions and need the accuracy to be above 80% They are all related to international finance course Due Date: April 30 https://xlitemprod.pearsoncmg.com/api/v1/print/en-us/econ
Homework 4-Rosen Valchev
22. What was the key document that set out a plan towards a European Monetary Union?
A. Delores Report
B.
C. Single European Act
D. the Maastricht Treaty
23. What describes the credibility theory of the EMS?
A. As long as the fixed exchange rates were credible, the system would last.
B. EMS countries could import the Bundesbank’s inflation credibility.
C. Fixed exchange rates without capital controls are not credible.
D. The 1992 crisis was caused by a lack of credibility.
24.
When a country has more unstable money demand, its AA schedule is subject to (1)
resulting output fluctuations will be (2)
shifts and hence its
. The country with the more unstable money demand, therefore,
would benefit (3)
from a policy rule under which authorities offset shifts in money demand. In terms of
GG-LL diagram, how would an increase in the size and frequency of unexpected shifts in a country’s money demand
function affect the level of economic integration with a currency area at which the country will wish to join?
A. Its GG schedule would shift up and to the left and hence the country would find it advantageous
to join a currency union at a lower level of economic integration.
B. Its GG schedule would shift down and to the right and hence the country would find it
advantageous to join a currency union at a higher level of economic integration.
C. Its LL schedule would shift down and to the left and hence the country would find it
advantageous to join a currency union at a lower level of economic integration.
D. Its LL schedule would shift up and to the right and hence the country would find it advantageous
to join a currency union at a higher level of economic integration.
(1)
smaller
larger
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(2)
smaller
larger
(3)
less
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25. Norway pegs to the euro, but soon after it enters into this peg, the EMU benefits from a favorable shift in the world demand
for non-Norwegian EMU exports. (So EMU DD curve shifts right, but the Norwegian DD curve does not). Still since Norway
pegs to the EMU this will affects it exchange rate — specifically, this causes the exchange rate of the Norwegian krone
against non-euro currencies
A. to be unaffected.
B. to depreciate.
C. either to appreciate or to depreciate, depending upon Norwegian current account balances with
each of the non-euro currencies.
D. to appreciate.
How would this affect Norway?
A. There is no direct effect on Norwegian economy.
B. Norwegian output decreases.
C. Norwegian current account against non-euro countries improves.
D. Norwegian output increases.
The size of this effect is (1)
the greater the volume of trade between Noway and other Euro-zone
countries (and therefore the (2)
(1)
smaller
(2)
larger
the proportion of trade between Norway and non-euro-zone countries).
larger
smaller
26. Norway pegs to the euro, but soon after it enters into this peg, the EMU benefits from a favorable shift in the world demand
for non-Norwegian EMU exports. (So EMU DD curve shifts right, but the Norwegian DD curve does not). Still since Norway
pegs to the EMU this will affects it exchange rate — specifically, this causes the exchange rate of the Norwegian krone
against non-euro currencies
A. either to appreciate or to depreciate, depending upon Norwegian current account balances with
each of the non-euro currencies.
B. to depreciate.
C. to be unaffected.
D. to appreciate.
How would this affect Norway?
A. There is no direct effect on Norwegian economy.
B. Norwegian output decreases.
C. Norwegian output increases.
D. Norwegian current account against non-euro countries improves.
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27. EMS provisions for the extension of central bank credits from strong-to-weak-currency members might have increased the
stability of EMS exchange rates, because
A. a weak-currency central bank can defend its currency simply by buying its domestic assets with
the help of the stong-currency central bank which in turn sells its foreign reserves of the weak
currency.
B. in theory, any two member countries’ central banks can act together to fix the exchange rate
C. a strong-currency central bank can stabilize the exchange rate by increasing its reserve of
domestic assets.
D. a weak-currency central bank can defend its currency by putting at its disposal more reserves
borrowed from a strong-currency cnetral bank.
28. In the EMS before September 1992 the lira/DM exchange rate could fluctuate by up to 2.25 percent up or down. Assume
that the lira/DM central parity and band were set in this way and could not be changed.
In this case, the maximum possible difference between the interst rates on one-year lira and DM deposits would have
been
percent. The maximum possible difference between the interst rates on six-month lira and DM
deposits would have been
percent. On three-month deposits,
percent. (Enter all
responses as percentages rounded up to two decimal places.)
29. In the EMS before September 1992 the lira/DM exchange rate could fluctuate by up to 2.25 percent up or down. Assume
that the lira/DM central parity and band were set in this way and could not be changed.
In this case, the maximum possible difference between the interst rates on one-year lira and DM deposits would have
been 4.50 percent. The maximum possible difference between the interst rates on six-month lira and DM deposits would
have been 9.00 percent. On three-month deposits, 19.25 percent.
Imagine that in Italy the interest rate on five-year government bonds was 11 percent per annum; in Germany the rate on
five-year government bonds was 8 percent per annum.
What would have been the implications for the credibility of the current lira/DM exchange parity?
A three-percent difference on the annual rate of a five-year bond means a difference of 1.035 = 1.159, which was far
above the amount that would be consistent with the maintenance of the EMS bands (4.5%).
Do your answers to the last two questions require an assumption that interest rates and expected exchange rate changes
are linked by interest parity? Why or why not?
A. No, because the EMS had many other policy tools to maintain the exchange-rate differencials
among its members which did not have to be consistent with interest parity.
B. The answer must be “Uncertain.” There are many factors that are left out of the basic interest
parity such as capital control, the immobility of productive factors, and trade regulations.
C. No, because the EMS was operated under the strict condition of capital control among its initial
members.
D. Yes, because this condition links thr returns on assets denominated in different currencies.
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30. Norway pegs to the euro, but soon after, EMU benefits from a favorable shift in the world demand for non-Norwegian EMU
exports. This causes the exchange rate of the Norwegian krone against non-euro currencies
A. either to appreciate or to depreciate, depending upon Norwegian current account balances with
each of the non-euro currencies.
B. to be unaffected.
C. to depreciate.
D. to appreciate.
How would this affect Norway?
A. Norwegian output increases.
B. Norwegian current account against non-euro countries improves.
C. Norwegian output decreases.
D. There is no direct effect on Norwegian economy.
The size of this effect is (1)
the greater the volume of trade between Noway and other Euro-zone
countries (and therefore the (2)
(1)
smaller
larger
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(2)
the proportion of trade between Norway and non-euro-zone countries).
larger
smaller
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31. During the speculative pressure on the EMS exchange rate mechanism (ERM) shortly before Britain allowed the pound to
float in September 1992, the Economist, a London weekly news magazine, opined as follows:
The [British] government’s critics want lower interest rates, and think this would be possible if Britain devalued sterling,
leaving the ERM if necessary. They are wrong. Quitting the ERM would soon lead to higher, not lower, interest rates,
as British economic management lost the degree of credibility already won through ERM membership. Two years ago
British government bonds yielded three percentage points more than German ones. Today the gap is half a point,
reflecting investors’ belief that British inflation is on its way down—permanently. (See “Crisis? What Crisis?”
Economist, August 29, 1992, p.51.)
a. Why might the British government’s critics have thought it possible to lower interest rates after taking sterling out of the
ERM? (Britain was in a deep recession at the time the article appeared.)
A. A deep recession might have been caused by high interest rates. Taking sterling out of the ERM
would automatically have lowered interst rates.
B. The ERM set a very wide fluctuation margins for exchange rates of its member countries, which
might have the source of Britain’s high interest rates in the midst of her deep recession.
C. As a member of ERM, British monetary authorities were obligated to maintain nominal interest
rates at a level compatible with keeping the pound in the currency band.
D. The ERM might have enforced a high interest rate policy for its all members in order to maintain
its system of exchange rate adjustments.
b. The Economist thought the opposite would occur soon after Britain exited the ERM, because:
A. the market cridibility would be more important than the actual policies and leaving the EMS
would wipe out the cridibility already won throught ERM membership.
B. the devaluation of pound within the stipulated fluctuation margins was still possible without
leaving the EMS.
C. the writer believed in the Fisher effect that the higher the expected inflation the lower nominal
interest rates.
D. the writer believed that expected inflation will rise in Britain if it leaves the EMS, which will cause
c. Britain entered the ERM in October 1990. The ERM membership might have gained credibility for British policymakers
because:
A. the policymakers were willing to forsake thier independence and let the ERM dictate the
economic policies.
B. British policymakers lost their credibility before the membership and joining the ERM was the
last resort.
C. maintaining the pound’s value within the ERM was a sign that they were willing to allow the
economy to go through the recession without resorting to a monetary expansion.
D. the ERM’s guidelines for exchange rate movements were broad enough for British policymakers
to exercise their independent policies while being a member.
d. Which of the following is NOT a possible explanantion for a high level of British interest rates relative to German interest
rates?
A. According to the Fisherian relationship, a high future inflation in Britain relative to that in
Germany is expected.
B. A relatively lower money supply growth in Britain than in Germany.
C. More consistent monetary policies in Britain than in Germany.
D. A relatively higher money demand in Britain than in Germany.
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e. Which of the following may not be the reason why British interest rates might have been somewhat higher than German rates
at the time of writing, despite the alleged “belief that British inflation is on its way down — permanently?”
A. British output might have been relatively higher higher.
B. British demand for money might have increased relatively more.
C. German demand for money might have been higher than British demand.
32. Which of the following is NOT one of the reasons Europe moved from EMS to EMU?
A. To impose fiscal discipline on EU countries.
B. To achieve complete freedom of capital movements.
C. To achieve a greater degree of European market integration.
D. To improve the political stability of Europe.
33. Which of the following is NOT a criterion formulated in the Maastricht Treaty?
A. Price stability
B. Exchange rate stability
C. Unemployment level
D. Budget discipline
34. Which of the following is NOT true about the ESCB?
A. Any one country can exert veto power over monetary policy.
B. It includes European Central Bank.
C. It is an abbreviation for the European System of Central Banks.
D. It acts as an independent monetary authority.
35. Imagine that the EMS had become a monetary union with a single currency but that it sreated no European Central Bank
to manage this currency. Instead, imagine that the task had been left to the various national central banks, each of which
was allowed to issue as much of the European currency as it liked and to conduct open-market operations. What problem
can you foresee arising from such a scheme?
A. The EMS basic stipulation would force all central banks to conduct their monetary policies
properly so that the end result would be the same as with European Central Bank.
B. A lower inflation in the system than would otherwise occur if central bank actions were
coordinated.
C. A system-wide interst parity condition.
D. A higher inflation in the system than would otherwise occur if central bank actions were
coordinated.
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36. Why would the failure to create a unified EU labor market be particularly harmful to the prospects for a smoothly
functioning EMU, if at the same time capital is completely free to move among EU countries?
A. Severe and persistent regional depressions could result if capital moves freely while labor does
not.
B. The economic stability loss a country experiences when joining may be exacerbated if labor and
capital markets differ widely in terms of mobility.
C. The cost of adjusting to product market shocks will increase, especially for countries where
capital mobility is high relative to labor mobility.
D. All of the above.
E. A and B only.
37. The Euro-zone is not an optimum currency area because
A. capital mobility is too low among European countries.
B. labor mobility is too low among European countries.
C. it includes too many countries.
D. it does not include all of the EU.
38. Under what circumstances should a country join a monetary union?
A. If they hope to trade more with other countries in the currency union.
B. If there is extensive labor mobility.
C. If it has sufficient integration such that gains from union outweigh losses.
D. If there is a high degree of economic integration.
39. Our theory of optimal currency areas suggests that
A. countries with extensive goods and factor trade should generally join a currency union.
B. the U.S., Japan, and the EU need to lower exchange rate volatility across the major world
economies.
C. small countries should always join a monetary union.
D. large economies should never join a monetary union.
40. Which of the following DOES NOT contribute to the monetary efficiency gains of a currency union?
A. Lower transaction costs.
B. Less uncertainty.
C. More stable monetary policy.
D. All of the above are part of the gains.
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41. Movements in the euro’s external exchange rate can be seen as goods-market shocks that have asymmetric effects on
different effects on different euro zone members. When the euro appreciated against China’s currency in 2004, which
country suffered the greater fall in aggregate demand, Germany, which does not compete directly with China in its export
markets, or Greece, which does?
A. Greece
B. Germany
C. Both equally
D. Uncertain
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