Question

MULTIPLE CHOICE Q's

11. Flabovia’s Central Bank (FCB) intervenes in the foreign exchange market in order to mitigate short-term fluctuations in its currency, the Flab. Such intervention is referred to as:

1. Illegal
2. Neutral
3. Monetary reserve method
4. Leaning against the wind
5. Unofficial pegging

12. Monetary foreign exchange market intervention:

1. Is also referred to as non-sterilized intervention
2. Generally, applies only to fixed exchange rate systems (especially during economic downturns)
3. Generally, results in less drastic exchange rate change than the change generated by non-monetary intervention
4. Generally, results in less drastic exchange rate change than that generated by sterilized intervention

13. According to most observers of the International Monetary System, the current exchange rate system associated with currencies of most of the major world economies can be characterized as:

1. Selective Peg with a touch of Gold Standard
2. Free Float
3. Fixed Exchange Rate
4. Managed Float
5. Managed Fixed Rate       

Answer 1

11. Monetary reserve method is a process where central bank uses its reserves to manipulate the exchange rate. So the answer is the Monetary reserve method followed by FCB.

12. Sterilized intervention is the process where the CB purchases foreign currencies or securities by selling domestic ones to manipulate the exchange rate. But if this is done by manipulating the money supply then it is a non-sterilized method. So the answer is a non-sterilized intervention.

13. Free float is accepted by Australia, Canada, Japan, USA, UK. So the answer is Free Float.