International Finance And Treasury - Study Mode
[#356] Under fixed exchange rate system, fall in the value of domestic currency due to deficit in balance of payments resulted in
Correct Answer
(D) no change in the exchange rate normally
Explanation
Solution: Under fixed exchange rate system, fall in the value of domestic currency due to deficit in balance of payments resulted in no change in the exchange rate normally. A fixed exchange rate is a regime applied by a government or central bank ties the country's currency official exchange rate to another country's currency or the price of gold. The purpose of a fixed exchange rate system is to keep a currency's value within a narrow band.
[#357] Under the original scheme IMF, a member country had to obtain the permission of IMF for
Correct Answer
(A) any devaluation of its currency
Explanation
Solution: Under the original scheme IMF, a member country had to obtain the permission of IMF for any devaluation of its currency. The IMF formally came into existence on 27 December 1945, when the first 29 countries ratified its Articles of Agreement. By the end of 1946 the IMF had grown to 39 members. On 1 March 1947, the IMF began its financial operations, and on 8 May France became the first country to borrow from it.
[#358] At present the role of IMF in the exchange rate policies of its members is to
Correct Answer
(B) have surveillance and express opinion on policies
Explanation
Solution: At present the role of IMF in the exchange rate policies of its members is to have surveillance and express opinion on policies. The International Monetary Fund (IMF) is an organization of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
[#359] Pegging the value of a currency can be done by
Correct Answer
(D) any of the above
Explanation
Solution: Pegging is controlling a country's currency rate by tying it to another country's currency or steering an asset's price prior to option expiration. Pegging the value of a currency can be done by pegging to a major currency or pegging to a basket of currencies or pegging to SDR.
[#360] Direct relationship between price change and interest rate change is represented by
Correct Answer
(A) positive duration
Explanation
Solution: Direct relationship between price change and interest rate change is represented by positive duration. The name for a particular relationship between changes in the price of a debt security and changes in prevailing interest rates. When a security has positive duration, its price increases in response to a decrease in prevailing market rates. Almost all securities have positive duration.