PART I : TRUE OR FALSE
_____ 1. Viet Nam's balance of payments is a systematic record of all transactions between the residents of Viet Nam and the rest of the world.
_____ 2. Viet Nam's current account records all international borrowing and lending transactions between the residents of Viet Nam and the rest of the world.
_____ 3. Viet Nam's official settlements account shows the net increase or decrease in Viet Nam's holdings of foreign currency.
_____ 4. Viet Nam's current account deficit is equal to the difference between the government's budget deficit and the private sector deficit.
_____ 5. Viet Nam's private sector deficit tends to increase as its disposable income increases.
_____ 6. A decrease in Vietnamese interest rates would tend to increase investment and increase the Vietnamese private sector surplus.
_____ 7. An increase in Vietnamese government spending on goods and services tends to increase Vietnamese exports and reduce imports and thus reduces the current account deficit.
_____ 8. If the dong has appreciated, its price in terms of other currencies has increased.
_____ 9. There are three ways in which Viet Nam can organize its foreign exchange market. They are: fixed exchange rates, flexible exchange rates and floating exchange rates.
_____ 10. In a flexible exchange rate regime, a current account surplus must be exactly matched by a capital account deficit.
_____ 11. In a managed exchange rate regime, the exchange rate is permanently kept at a fixed level by the central bank.
_____ 12. The gold standard effectively ruled out persistent money creation on a large scale and ruled out persistently high inflation rates.
_____ 13. During the period of the dollar standard, the United States could always finance a balance of payments deficit by printing more money.
_____ 14. The World Bank is an international organization that was created to monitor balance of payments and exchange rate activities.
_____ 15. A trade-weighted index would be used to determine whether the dong had appreciated or depreciated.
_____ 16. When the State Bank of Viet Nam buys government securities, it increases the quantity of dong assets.
______ 17. The lower the value of the dong, the larger is the demand for Vietnamese exports and the lower is the Vietnamese demand for imports.
______ 18. Other things being equal, the lower the value of the dong today, the higher is its expected future value.
____ 19. The demand for dong-denominated assets will tend to increase if the interest rate on dong-denominated assets increases.
_____ 20. The demand for dong-denominated assets will tend to decrease if the dong is expected to depreciate.
_____ 21. Under a fixed exchange rate regime, the supply curve of dong assets would be vertical at the chosen exchange rate.
_____ 22. Under a fixed exchange rate regime, an increase in the demand for dong assets would result in an increase in official holdings of foreign exchange.
_____ 23. Under a fixed exchange rate system, Viet Nam would become less competitive if it had above-average rates of inflation.
_____ 24. The real exchange rate between the dong and the dollar is equal to the nominal exchange rate divided by the dong price of Vietnamese goods.
_____ 25. Under a managed exchange rate regime, the supply curve of dong assets would be downward sloping.
_____ 26. Under a flexible exchange rate regime, the supply curve of dong assets would be upward sloping.
_____ 27. Under flexible exchange rates, it is possible that different countries can maintain different inflation rates indefinitely.
_____ 28. Flexible exchange rates must follow the purchasing power parity path in the short run and the long run.
_____ 29. Under a flexible exchange rate regime, an increase in Vietnamese interest rates would increase the value of a the dong. That would lead to an increase in Vietnamese exports and thus increase aggregate demand.
_____ 30. Sometimes an increase in the supply of dong assets will cause a decrease in the demand for dong assets by causing interest rates to decline.
_____ 31. Arbitrage would tend to increase the differences in relative prices between the United States and Viet Nam.
_____ 32. The difference between the interest rate on dollar assets and the interest rate on dong assets reflects differences in expected rates of depreciation.
_____ 33. The total return to an American buying Vietnamese bonds is the interest rate paid on Vietnamese bonds in dong plus any capital gain arising from the depreciation of the dong.
_____ 34. A country in which the government has a deficit is likely to be one that has a deficit in its trade with the rest of the world.
_____ 35. Countries whose currencies are appreciating tend to have high interest rates and countries whose currencies are depreciating tend to have low interest rates.
_____ 36. Imports tend to respond faster to changes in the real exchange rate than to changes in domestic incomes.
_____ 37. If there is perfect capital mobility, Viet Nam cannot set independent targets for the money supply and the exchange rate.
_____ 38. If Vietnamese prices and wages adjust slowly, the immediate effect of a devaluation of the dong is to reduce international competitiveness of Viet Nam.
_____ 39. In the long run, raising the level of Vietnamese international competitiveness requires a decline in Vietnamese real wages.
_____ 40. Viet Nam's real exchange rate can be changed by either a change in the nominal exchange rate or a change in the domestic price level.
PART II: FILL IN THE BLANKS
1. Viet Nam's balance of payments accounts include the current account, the ___________________ account and the official settlements account.
2. ___________________ reserves are the government's holdings of foreign currency.
3. In a ___________________ exchange rate regime, the value of the exchange rate is determined by market forces.
4. Currency _______________________ is the fall in the value of one currency in terms of another currency.
5. ___________________________ is the activity of buying foreign exchange at a low price in one market and selling it at a high price in another market.
6. The Law of _________________________ states that any given commodity will be available at a single price.
7. _________________________ parity occurs when interest rates are equal in two countries once differences in risk are taken into account.
8. International ________________________ is measured by comparing the relative prices of the goods from different countries when they are measured in a common currency.
9. The purchasing power parity exchange rate path is the path of the _________________ exchange rate that would keep the real exchange rate constant.
10. ______________________________ is an open market operation designed to prevent balance of payments surpluses or deficits from changing the domestic money supply.