Exam 15: Exchange-Rate Systems and Currency Crises

Figure 15.2 Market for the British Pound -Refer to Figure 15.2. Suppose the demand for pounds increases from D₀ to D₁. Under a fixed exchange rate system, the U.S. exchange stabilization fund could maintain a fixed exchange rate of $0.80 per pound by:

A "key currency" is one that is widely traded on world money markets, has demonstrated relative stable values over time, and has widely been accepted as a means of international settlement.

Given a two-country world, suppose Japan devalues the yen by 20 percent and South Korea devalues the won by 15 percent. This results in:

Table 15.1. The Market for Francs Quantity of Dollar price Quantity of francs demanded of francs francs supplied 600 \0 .05 0 500 0.10 100 400 0.15 200 300 0.20 300 200 0.25 400 100 0.30 500 0 0.35 600 -Refer to Table 15.1. Under a system of floating exchange rates, the equilibrium exchange rate equals:

To offset an appreciation in the dollar's exchange value, the Federal Reserve can nudge interest rates down in the United States which results in net investment outflows.

The Bretton Woods Agreement of 1944 established a monetary system based on:

The purpose of currency devaluation is to cause the home country's exchange value to appreciate, thus reducing a balance of trade surplus.

The flexibility of floating rates may generate the problem of

Developing countries with more than one major trading partner often peg their currencies to a group or basket of those trading partner currencies.

How can currency boards and dollarization prevent currency crises?

Since 1974, the major industrial countries have operated under a system of fixed exchange rates based on the gold standard.

Most developing countries have chosen to allow their currencies to float independently in the foreign exchange market.

Under a floating exchange-rate system, if American exports $\underline { \text { increase } }$ and American imports fall, the value of the dollar will:

To keep the yen's exchange value from appreciating against the dollar, Japan's exchange stabilization fund would buy yen for dollars on the foreign exchange market.

What is the difference between the crawling peg and adjustable pegged exchange rates?

The exchange-rate system that $\underline { \text { best } }$ characterizes the present international monetary arrangement used by industrialized countries is:

Given an initial equilibrium in the money market and foreign exchange market, suppose the Federal Reserve $\underline {\text { increase }}$ the money supply of the United States. Under a floating exchange-rate system, the dollar would:

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

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. With a system of floating exchange rates, the equilibrium exchange rate is:

Which of the following is $\underline { \text { not } }$ a potential $\underline { \text { disadvantage } }$ of freely floating exchange rates?