Exam 15: Exchange Rate Systems and Currency Crises

By maintaining a strong commitment to fixed exchange rates,a currency board hopes that domestic inflation will slow down and the possibility of a speculative attack against its currency will be reduced.

Under the historic adjustable pegged exchange-rate system,member countries were permitted to correct persistent and sizable payment deficits (i.e.,fundamental disequilibrium) by:

Suppose that Japan maintains a pegged exchange rate that overvalues the yen.This would likely result in:

In 1973,the reform of the international monetary system resulted in the change from:

A market-determined increase in the dollar price of the pound is associated with:

Figure 15.1 shows the market for the Swiss franc.In the figure,the initial demand for marks and supply of marks are depicted by D0 and S0 respectively. Figure 15.1.The Market for the Swiss Franc -Refer to Figure 15.1.Suppose the United States decreases investment spending in Switzerland,thus reducing the demand for francs from D0 to D2.Under a floating exchange rate system,the new equilibrium exchange rate would be:

Under a floating exchange-rate system,if the U.S.dollar depreciates against the Swiss franc:

The revenue that a government received by issuing money is called a fiscal dividend.

Which nations use multiple exchange rates the most and why?

Small nations (e.g.,the Ivory Coast) whose trade and financial relationships are mainly with a single partner tend to utilize:

The central bank of the United Kingdom could prevent the pound from appreciating by:

In recent years,members of the International Monetary Fund have adopted exchange rate systems including

Hong Kong provides an example of a country that has maintained a currency board.The purposes of its currency board is to

Under a system of fixed exchange rates,if the international reserves of a country's central bank become exhausted,it can no longer prevent its currency from

If the Federal Reserve wants to see the dollar's exchange value depreciate,it could pursue a contractionary monetary policy.

By adopting a currency board,a developing country hopes to

Smaller nations with relatively undiversified economies and large trade sectors tend to peg their currencies to one of the world's key currencies.

The special drawing right is a currency basket of five major industrial country currencies.

Under the Bretton Woods System of 1944-1973

The Bretton Woods System of 1944-1973 was based upon