Exam 15: Exchange-Rate Systems and Currency Crises

Under a floating exchange-rate system, which of the following best leads to a $\underline { \text { depreciation } }$ in the value of the Canadian dollar?

To temporarily offset a $\underline { \text { depreciation } }$ in the dollar's exchange value, the Federal Reserve could ____ the U.S. money supply which would promote a (an) ____ in U.S. interest rates and a (an) ____ in investment flows to the United States.

In order to stabilize a currency, the central bank will need to adopt

Figure 15.2 Market for the British Pound -Refer to Figure 15.2. Suppose the United States decreases investment spending in England. Under a floating exchange rate system, the new equilibrium exchange rate would be:

In 1973 the major industrial countries terminated managed-floating exchange rates and adopted an adjustable-pegged exchange rates.

The central bank of the United Kingdom could $\underline { \text { prevent } }$ the pound from $\underline { \text { appreciating } }$ by:

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

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.

Under the gold standard, the official exchange rate would be $2.80 per pound as long as the United States bought and sold gold at a fixed price of $35 per ounce and Britain bought and sold gold at 12.5 pounds per ounce.

To offset an appreciation of the dollar against the yen, the Federal Reserve would:

Today, fixed exchange rates are used primarily by small, developing countries that tie their currencies to a key currency such as the U.S. dollar.

Proponents of freely floating exchange rates maintain that:

If Mexico dollarizes its economy, it essentially

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:

If Uganda devalues its shilling by 10 percent and Burundi devalues its franc by 5 percent, the shilling's exchange value appreciates 10 percent against the franc.

A main purpose of exchange stabilization funds is to:

What is an SDR?

Rather than constructing their own currency baskets, many nations peg the value of their currencies to a currency basket defined by the International Monetary Fund. Which of the following illustrates this basket?

During the 1970s, the European Union, in its quest for monetary union, adopted what came to be referred to as the "Community Snake." This device was a:

Which exchange-rate system does $\underline { \text { not } }$ require monetary reserves for official exchange-rate intervention?