Exam 18: Fixed Exchange Rates and Foreign Exchange Intervention

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.

This question concerns the mechanism of a reserve currency standard. Two countries,X and Y,have two currencies,x and y,fixed to the reserve currency,the U.S.dollar.Suppose the exchange rate between x and the U.S.dollar is 3x per dollar.Suppose the exchange rate between y and the U.S.dollar is 5y per dollar.Explain (using numbers)the mechanism if the x-y exchange rate was 0.5 x per y.

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

Under fixed exchange rate,in general which one of the following statements is the MOST accurate?

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 = Find the new domestic interest rate if a sterilized purchase of foreign assets adjusts A s.t. (a)B - A = -.01/ (b)B - A = .01/ (c)B - A = .03/

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

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.

Which one of the following statements is the MOST accurate?

Imperfect asset substitutability exists

Imperfect asset substitutability assumes

Which one of the following statements is the MOST accurate?

Why is it important to understand fixed exchange rates in the modern global economy?

Which one of the following statements is most correct?

If the central bank does not purchase foreign assets when output increases but instead holds the money stock constant,can it still keep the exchange rate fixed at ? Please explain with the aid of a figure.

A balance of payments crises under fixed exchange rates occurs when

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%?

List the drawbacks of the gold standard.

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

Perfect asset substitutability is the assumption that

Please discuss the difference between the terms devaluation and depreciation.