General/XR Analysis
Under credible fixed exchange rate regimes and perfect capital mobility, which of the following must occur?
a. The central bank must use monetary policy rates to affect domestic output
b. In the absence of a risk premium, the domestic and foreign interest rates must be equal
c. Faced with a shock, the economy must adjust rapidly
d. Inflation in the domestic country must be higher than that in the anchor economy
b. In the absence of a risk premium, the domestic and foreign interest rates must be equal
When hit with a terms of trade shock, compared to pegs, in countries with a floating XR regime, the responses…:
a. … of real XR are larger and of GDP are smaller
b. … of real XR are smaller and of GDP are larger
c. … of both real XR and GDP are smaller
d. … of both real XR and GDP are larger
a. … of real XR are larger and of GDP are smaller
Which of the following is the work horse model in exchange rate assessment at the IMF?
a. The Current Account Approach
b. The REER approach
c. The External sustainability approach
d. None of the above
a. The Current Account Approach
What is NOT a common motive for FX interventions:
a. Smoothing the impact of commodity price fluctuations
b. Limiting excessive swings in the exchange rate
c. Building FX reserves
d. Attracting capital inflows
d. Attracting capital inflows
Which of the following is true about twin (and triple) crises:
a. They are usually accompanied by multiple weak and deteriorating economic fundamentals
b. Banking crises tend to coincide with, or precede currency crises and sovereign debt crises
c. They are far more severe than separate banking/currency/debt crises
d. All of the above
d. All of the above
When did Singapore become independent?
a. 1945
b. 1955
c. 1965
d. 1975
e. 1985
c. 1965
Under imperfect capital mobility:
a. Monetary policy can be used to affect prices/output
b. Monetary policy can be used to affect the exchange rate
c. Fiscal policy can be used to affect output
d. All of the above
d. All of the above
For a successful adoption and maintenance of a pegged XR regime in a typical emerging economy:
a. Disciplined fiscal policy is desirable.
b. Disciplined fiscal policy is necessary.
c. Fiscal policy stance does not matter.
d. Fiscal and monetary policy decisions should support economic growth.
b. Disciplined fiscal policy is necessary.
Which of the following is NOT true?
a. EBA is an assessment informed by model
b. EBA is an assessment informed by both model and judgement
c. EBA has a vetting process to ensure multilateral consistency
d. EBA takes into account desirable policies
a. EBA is an assessment informed by model
For a typical emerging economy, maintaining FX reserves:
a. Results in a central bank profit of 0.5% of GDP
b. Has no costs
c. Costs around 0.5% of GDP
d. Costs above 2% of GDP
c. Costs around 0.5% of GDP
In the second-generation currency crisis (i.e. self-fulfilling speculative attacks), which of the following is its feature?
a. The central bank will always try to keep the peg
b. All pegs are vulnerable to speculative attacks
c. The central bank will optimize between price stability and injecting liquidity to the economy
d. The attack is a result of policy inconsistencies, i.e. persistent fiscal deficit and fixed exchange rate
c. The central bank will optimize between price stability and injecting liquidity to the economy
Which indicator is better to use to identify currency crisis episodes?
a. Change in nominal exchange rate
b. Change in real exchange rate
c. Change in foreign exchange reserves
d. Change in exchange market pressure index
d. Change in exchange market pressure index
Which of the following economists has won a Nobel Prize in Economics?
a. Nobuhiro Kiyotaki
b. Amartya Sen
c. Hyun-Song Shin
d. Justin Lin
b. Amartya Sen
According to the bipolar view of exchange rate regimes:
a. A managed float is preferable to a free float
b. A conventional peg is preferable to a horizontal band
c. A crawling peg is preferable to a crawling band
d. A currency board is preferable to a stabilized arrangement
d. A currency board is preferable to a stabilized
Which variable is NOT a fundamental macroeconomic determinant of the level of the current account in the IMF External Balance Assessment?
a.Per-capita income
b.Age dependency ratio
c.Fiscal balances in the rest of the world
d.Nominal wages
d.Nominal wages
Which country in Asian Football Confederation has finished the highest in World Cup?
a. Australia
b. Japan
c. South Korea
d. Iran
c. South Korea
Besides multiple equilibria, what is a common feature of second generation currency crises?
a. Self-fulfilling expectations
b. Bank runs
c. Sovereign default
d. Currency mismatches
a. Self-fulfilling expectations
Which threshold for classifying an observation as a currency crisis will likely result in more false alarms?
a. Sample mean of the exchange market pressure index + 1 standard deviation
b. Sample mean of the exchange market pressure index + 1.5 standard deviation
c. Sample mean of the exchange market pressure index + 2 standard deviation
d. Sample mean of the exchange market pressure index + 2.5 standard deviation
a. Sample mean of the exchange market pressure index + 1 standard deviation
Which of the following tends to have most empirical support:
a. Covered Interest Parity holds
b. Uncovered Interest Parity holds
c. Absolute PPP holds
d. Relative PPP holds
a. Covered Interest Parity holds
Which country in Asia has won the most miss universe?
a. India
b. Philippines
c. Japan
d. Thailand
b. Philippines
Under relative PPP, with a domestic inflation of 5%, a foreign inflation of 2%, a nominal exchange rate depreciation of 3%, the real exchange rate:
a. Appreciates by 3%
b. Depreciates by 3%
c. Is unchanged
d. Depreciates by 6%
c. Is unchanged
In which of the following cases are higher FX reserves needed:
a. A fully fledged inflation targeting regime
b. Capital control measures on inflows
c. Capital control measures on outflows
d. Export structure: copper (55%), textiles (20%), processed food (15%) and miscellaneous (10%)
d. Export structure: copper (55%), textiles (20%), processed food (15%) and miscellaneous (10%)
What was the first product that Donald Trump imposed tariff on during his first presidential term?
a. Automobile
b. Cellphone
c. Steel
d. Washing machine
d. Washing machine
How to choose an optimal cut-off value for the crisis probability to signal a crisis?
a. Optimal cutoff probability should maximize Type 1 error + Type 2 error
b. Optimal cutoff probability should minimize Type 1 error + Type 2 error
c. Optimal cutoff probability should minimize Type 1 error
d. Optimal cutoff probability should maximize Type 2 error
b. Optimal cutoff probability should minimize Type 1 error + Type 2 error
Micronesia is a small open economy with relatively high capital mobility. Expected exchange rate was 10 Micronesian dinars (MND) per 1 US dollar. Micronesia’s CB suddenly increases interest rate from 9% to 15% reacting to US Fed unexpected decision to increase rate by 1 pp. What happens to dinar at the local FX market nearest time?
a. Depreciates by 5%
b. Appreciates by 6%
c. Remains the same as this affects only the long-run expected exchange rate
d. Changes its value to 9.5 MND/USD
d. Changes its value to 9.5 MND/USD
In which of the following circumstances are the net benefits of a free-floating exchange rate likely to be greater?
a. If the economy is small and heavily reliant on international trade
b. If capital flows are excessively volatile
c. If labor mobility is limited across sectors within an economy
d. If monetary policy has had difficulty controlling the rate of inflation in the economy
c. If labor mobility is limited across sectors within an economy
Using data below, estimate how much REER has to adjust and whether this adjustment is appreciation or depreciation to bring the current account gap to zero?
Current account gap (% of GDP) = adjusted CA – norm: -2.0
REER elasticity (ε) to current account: -0.4
RRER gap (%); + is overvaluation ?
a. Appreciation of 5.0%
b. Depreciation of 5.0%
c. Appreciation of 0.8%
d. Depreciation of 0.8%
b. Depreciation of 5.0%
When is official intervention in foreign exchange markets likely to be a policy tool that can be used to influence exchange rates independently of monetary and fiscal policy tools?
a. When the intervention operations are conducted in assets that are perfect substitutes
b. When the intervention operations are conducted in assets that are imperfect substitutes
c. When the intervention operations signal future changes in the stance of monetary or fiscal policy
d. When the intervention operations induce an increase in the diversity of views among traders about macroeconomic fundamentals
b. When the intervention operations are conducted in assets that are imperfect substitutes
Third generation currency crises arise because of:
a. Fiscal vulnerabilities
b. Financial sector vulnerabilities
c. High unemployment rates
d. Market manipulation
b. Financial sector vulnerabilities
Which of the following Early Warning Systems performs better if you put more importance on avoiding Type II error?
a. EWS 1: 30% of crisis signals are false alarms, 50% of crises are missed
b. EWS 2: 50% of crisis signals are false alarms, 30% of crises are missed
c. EWS 3: 20% of crisis signals are false alarms, 40% of crises are missed
d. EWS 4: 40% of crisis signals are false alarms, 20% of crises are missed
d. EWS 4: 40% of crisis signals are false alarms, 20% of crises are missed