Exam 57: Exchange Rates and Financial Links Between Countries

Fixed exchange rates require the economic policies of countries linked by the exchange rate to be:

Under a floating exchange-rate system, a country needs to pay more attention to the economic policies of the rest of the world.

Assume that a country's government influences the exchange rate through active central bank intervention, with no pre-announced path.This policy is known as a(n):

An appreciation of the Norwegian kroner in relation to the U.S.dollar is most likely to cause:

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 36.2 Refer to Figure 36.2.Suppose the British central bank is committed to maintaining an exchange rate of £1 = $1.50, but there is a permanent shift in supply from S₁ to S₃.According to the Bretton Woods agreement:

The euro floats against other currencies, but the member nations of the euro have no separate national money.For this reason, Spain, that uses the euro as its currency is listed under the managed float arrangement.

The gold standard ended in the 1970s because the gold supplies failed to keep pace with the increase in money supplies required for industrialization and rapid economic growth witnessed in this era.

Suppose a 10-mile taxi ride costs £6.50 in London and $10.00 in Los Angeles.If the exchange rate is £1 = $1.70 purchasing power parity holds.

Foreign exchange market intervention is most effective when:

Under both the gold standard and the gold exchange standard countries bought and sold U.S.dollars to maintain a fixed exchange rate with the dollar.

The World Bank obtains the funds it lends by:

The figure given below depicts the demand and supply of Brazilian reals in the foreign exchange market.Assume that the market operates under a flexible exchange rate regime. Figure 36.1 In the figure: D₁ and D₂: Demand for Brazilian reals S₁ and S₂: Supply of Brazilian reals Refer to Figure 36.1.If the initial equilibrium exchange rate is 6 pesos per real, then other things equal, a decrease in the number of Brazilian tourists to Mexico would: