Exam 15: Exchange-rate Systems and Currency Crises

If Uganda sets its par value at 400 shillings per SDR and Burundi sets its par value at 200 francs per SDR,the official exchange rate is 1 franc = o.5 shillings.

A main purpose of exchange stabilization funds is to:

Given a two-country world,assume Canada and Sweden devalue their currencies by 20 percent.This would result in:

Given a two-country world,suppose Japan revalues the yen by 15 percent and South Korea revalues the won by 12 percent.This results in:

A primary objective of dual exchange rates is to allow a country the ability to insulate its balance of payments from net:

Suppose Sweden's inflation rate is less than that of its trading partner.Under a floating exchange rate system,Sweden would experience a:

Under managed floating exchange rates,the Federal Reserve could offset an appreciation of the dollar against the yen by:

Many developing nations with low inflation rates have pegged their currencies to the U.S.dollar as a way of allowing modest increases in domestic inflation rates.

To defend a pegged exchange rate that overvalues its currency,a country could:

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 D? and S? 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:

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

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.

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.

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

Under an adjustable-pegged system,market exchange rates are intended to be maintained within a narrow band around a currency's official exchange rate.In the case of fundamental disequilibrium,the currency can be devalued or revalued to promote current-account equilibrium.

A potential limitation of freely floating exchange rates is that:

At the Maastricht Treaty of 1991,members of the European Community established a blueprint for an Economic and Monetary Union with a single currency and a European central bank overseeing a single monetary policy.

Under a floating exchange-rate system,which of the following best leads to a depreciation in the value of the Canadian dollar?

Large industrial nations with diversified economies and small trade sectors have generally pegged their currencies to one of the world's key currencies.

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