Exam 15: Exchange-Rate Systems and Currency Crises

Which exchange-rate system involves a "leaning against the wind" strategy in which short-term fluctuations in exchange rates are reduced without adhering to any particular exchange rate over the long run?

An objective of the dollarization of the Mexican economy would be to:

Which exchange-rate mechanism is intended to insulate the balance of payments from short-term capital movements while providing exchange rate stability for commercial transactions?

By the early 1970s,gold had been phased out of the international monetary system.

Under a system of floating exchange rates,a U.S.trade deficit with Japan will cause:

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

The par values of most developing-country currencies are currently defined in terms of gold.

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:

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.

Which nations use multiple exchange rates the most and why?

If Mexico dollarizes its economy,it essentially

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:

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:

The flexibility of floating rates may generate the problem of

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.

Figure 15.2 Market for the British Pound -Refer to Figure 15.2.Suppose that the United States increases its imports from England.Under a floating exchange rate system,the new equilibrium exchange rate would be:

Today,special drawing rights (SDRs)represent the most important currency basket against which developing countries maintain pegged exchange rates.

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

Small nations (e.g.,Tanzania)with more than one major trading partner tend to peg the value of their currencies to:

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