16.The exchange rate is kept within narrow limits in different monetary centres by:

a. hedging

b. exchange arbitrage

c. interest arbitrage

d. speculation

17.Destabilizing speculation refers to the:

a. sale of the foreign currency when the exchange rate falls or is low

b. purchase of the foreign currency when the exchange rate falls or is low

c. sale of the foreign currency when the exchange rate rises or is high

d. all of the above

18.In order to achieve internal and external balance simultaneously, a nation must use at

least:

a.one policy

b.two policies

c.three policies

d.cannot say

19.The IS curve is negatively sloped because:

a.the higher is the rate of interest the smaller is the quantity of money demanded for

speculative purposes

b.higher rates of interest lead to greater capital flows

c.at lower interest rates the levels of investment and national income are higher

d.at lower interest rates the level of national income is lower

20. If the BP curve is above the point of intersection of the IS and LM curves, the nation

will:

a.have a balance of payments deficit at that level of income

b. have a balance of payments surplus at that level of income

c.be in recession

d.face inflation