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In accordance with the Coursera Honor Code, I (KK Fong) certify that the answers here are my own work.

Question 1

Under a gold standard, all of the following are true, EXCEPT...?

Gold is the ultimate international money

Gold is an asset that is no one's liability

Exchange rates can differ from mint par because of the cost of shipping gold

All currencies are at the same level in the hierarchy of money and credit

Question 2

What was the significant difference between the US and UK proposals at Bretton Woods?

The US proposal promoted flexible exchange rates, consistent with market principles

Banking School (US) versus Currency School (UK)

Private credit (US) versus public credit (UK)

Keynes' bancor proposal sought to shift the balance toward elasticity, while White's IMF proposal sought to shift the balance toward discipline

Question 3

Which of the following MOST accurately characterizes current international monetary arrangements?

Foreign banks rely in the first instance on Eurodollars, mere promises to pay actual dollars, as the international reserve

Low and stable inflation in each country independently is the best guarantor of stable exchange rates between countries

The quantity of Special Drawing Rights issued by the IMF is unchanged since Bretton Woods

Global reach by huge hedge funds has effectively eliminated the need for government controlled central banks

Question 4

Under a gold standard, all of the following statements are correct EXCEPT..?

Profit-seeking dealers establish the inside spread in foreign exchange markets

The survival constraint is more of problem for deficit countries than for surplus countries

Central banks establish the outside spread in foreign exchange markets

Balance sheet expansion by the central bank can satisfy external drains, but not internal drains

Question 5

All of the following statements about (potential) arbitrage conditions are correct EXCEPT....?

Uncovered interest parity is not a true riskless arbitrage condition because the future spot rate is unknown at the time that the corresponding forward rate is determined

The failure of uncovered interest parity provides an incentive for foreign exchange dealers to make markets

According to covered interest parity, any change in the differential between domestic and foreign term interest rates must be accompanied by a similar change in the overnight interest differential

Covered interest parity is a true arbitrage condition because all of the relevant prices are observable today

Question 6

What was the central function of "shiftability" in the American system?

Shiftability allowed banks to use their assets to raise cash as needed to meet short term liquidity calls

Shiftability prevented instability in financial markets

Shiftability made monetary policy more transparent

Shiftability allowed banks to raise funds by using the real bills discount mechanism

Question 7

All of the following statements about banking in Bagehot's time are correct EXCEPT...?

British banks safeguarded their liquidity by refusing to lend long term

The money market and the capital market were more distinct in Britain than in the US

US banks were more willing than British banks to lend long term because they had access to the discount window as a liquidity backstop

Funding liquidity was more important in Britain, and market liquidity was more important in the US

Question 8

All of the following statements about interest rate swaps are correct EXCEPT....?

Something like a swap can be constructed as a parallel loan, but it absorbs more balance sheet space

Interest rate swaps involve exactly the same counterparty risk as the analogous parallel loan construction

In a swap constructed as a parallel loan, both parties pay their original creditor as well as their new swap counterparty

A long swap position pays a fixed rate and receives a flexible rate.

Question 9

Only one of the following statements about swaps is correct. Which one?

Sovereigns can never default on debt issued in their own currency, so credit default swaps on sovereign debt make no sense

The quantity of swap contracts is limited by the quantity of the underlying referenced risky assets

Swap markets increase aggregate risk by expanding side bets on fundamentals

A swap contract moves risk from one counterparty to another

Question 10

All of the following are aspects of the "money view" EXCEPT...?

Emphasizes the importance of the central bank as ultimate provider of funding liquidity

Emphasizes the relationship between funding liquidity and market liquidity

Focuses on the problem of meeting cash commitments as they come due

Explains current asset prices as a consequence of expected future cash flows

In accordance with the Coursera Honor Code, I (KK Fong) certify that the answers here are my own work.

You cannot submit your work until you agree to the Honor Code. Thanks!

Economics of Money and Banking, Part Two

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Economics of Money and Banking, Part Two

Economics of Money and Banking, Part Twoby Perry G Mehrling

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Economics of Money and Banking, Part Two
by Perry G Mehrling