Exam 18: Fixed Exchange Rates and Foreign Exchange Intervention

Please use a figure to discuss whether or not a devaluation under a fixed exchange rate has the same long-run effect as a proportional increase in the money supply under a floating rate.

Currency crises may result from

Fiscal expansion under fixed exchange rates will have what temporary effect?

Perfect asset substitutability is the assumption that

Please discuss the difference between the terms devaluation and depreciation.

Assume that initially, the risk premium, ρ = 0 and that the domestic and foreign interest rates are given by R = .06, R* = .05. Suppose that the risk premium depends linearly on the difference between domestic government debt, B, and domestic assets of the central bank, A, i.e., ρ = How much will the central bank have to reduce domestic assets A s.t. the domestic interest rate will increase by (a) 1% (b) 4%?

Which one of the following statements is most correct?

When a country's currency is devalued

Briefly discuss the main advantage of the bimetallic standard over the gold standard.

A balance sheet for the central bank of Pecunia is shown below: Central Bank Balance Sheet Assets Liabilities Foreign assets $1,000 Deposits held by private banks $500 Domestic assets $1,500 Currency in circulation $2,000 Please write the new balance sheet if the bank sells $100 worth of foreign bonds for domestic currency.

The main reason(s) why governments sometimes choose to devalue their currencies is (are)

The global financial crisis of 2007-2008 resulted in a(n) ________ of the Swiss franc as foreign currency flowed ________ the country. As a result, Swiss products became ________ competitive in world markets.

What is the expected dollar rate of return on dollar deposits if today's exchange rate is $1.10 per euro, next year's expected exchange rate is $1.165 per euro, the dollar interest rate is 10%, and the euro interest rate is 5%?

Under fixed exchange rates, which one of the following statements is the MOST accurate?

Briefly describe two systems for fixing the exchange rates of all currencies against each other and the time periods in which they were used.

Which one of the following statements is the MOST accurate?

Please describe in detail a self-fulfilling currency crisis.

Which of the following best describes a deliberate government decision to lower the exchange rate, E?

Describe the mechanism which would take place if the Bank of England decides to increase its money supply by purchasing domestic assets under the gold standard.

If assets are imperfect substitutes, then an increase in the amount of domestic currency bonds held by the public will ________ the risk premium and ________ the amount of domestic currency bonds held by the central bank.