Exam 15: Exchange Rate Systems and Currency Crises

Given an initial equilibrium in the money market and foreign exchange market,suppose the Federal Reserve decreases the money supply of the United States.Under a floating exchange rate system,the dollar would:

Under a floating exchange-rate system,if American exports increase and American imports fall,the value of the dollar will:

To help insulate their economies from inflation,currency depreciation,and capital flight,developing countries have implemented:

If Uganda revalues its shilling by 20 percent and Burundi devalues its franc by 5 percent,the shillings exchange value will appreciate by 25 percent against the franc.

In recent years,the United States has accused China of manipulating the yuan so as to gain an unfair competitive advantage in global trade.The United States has argued that China has

The purpose of an exchange stabilization fund is to ensure that the market exchange rate does not deviate beyond unacceptable levels from the official exchange rate.

Proponents of a fixed exchange rate system maintain that it is superior to a freely floating exchange rate system because it

Under a system of fixed exchange rates,the purpose of currency devaluation is to cause the exchange value of a currency to ______,thus counteracting a balance-of-payments ______.

Although controls on the outflow of capital for developing countries may be appealing,they tend to suffer from people finding ways to evade the controls and move funds out of the country.

A potential disadvantage of freely floating exchange rates is that there would:

To keep the pound's exchange value from depreciating against the franc,the British exchange stabilization fund would sell pounds for francs on the foreign exchange market.

Figure 15.2 Market for the British Pound -Refer to Figure 15.2.Demand and supply of British Pounds is initially D0 and S0.With a system of floating exchange rates,the equilibrium exchange rate is:

Countries tend to be less served by a fixed exchange rate system when

Pegging to a single currency is generally done by developing nations whose trade and financial relationships are mainly with a single industrial-country partner.

How can currency boards and dollarization prevent currency crises?

For a developing country,a _____ can foster economic instability because it can result in a lending boom and ______ by banks,which promotes a financial crisis.

A potential limitation of freely floating exchange rates is that:

A surplus nation can reduce its payments imbalance by:

The U.S.dollar is generally regarded as the major "key currency" of the international monetary system.

Unlike floating exchange rates,fixed exchange rates are not characterized by par values and central bank intervention in the foreign exchange market.