Exam 20: Exchange Rate Crises: How Pegs Work and How They Break

To maintain the peg, a nation must keep its circulating money supply constant. What factor(s) (in addition to its own actions) might result in a change in the money supply?

When a nation is maintaining an exchange rate peg, its money supply is typically backed by:

In general, when there is a large shock to domestic output, the government finds:

Uncovered interest parity may actually result in domestic interest rates being ____ than foreign rates because of investors' perceived risk of holding assets based in the domestic currency.

Which of the following is NOT likely to cause a money demand shock under a fixed exchange rate system?

A situation in which maintaining the peg could cause worse harms to the economy (such as high interest rates) may sway even prudent and cautious central bankers to abandon it. This situation is called:

El Salvador has dollarized; that is, it uses the U.S. dollar as its currency. What is the backing ratio for El Salvador's currency?

(Table: Mexico's Central Bank Balance Sheet) If the country sells 325 million pesos of foreign assets and issues domestic credit worth 425 million pesos, what will be the money supply in the economy?

The degree of danger of breaking the peg focuses on:

Emerging markets and developing economies are more likely to want to maintain fixed exchange rates because of their dependence on exports. However, these regimes are often more difficult for them. Why?

From 2003 to 2009, the backing ratio for the Chinese economy rose to more than 100%. How did this happen?

In emerging markets, the reductions in growth of GDP as a result of exchange rate crises:

Why might a default crisis be associated with an exchange rate crisis?

Which of the following is the most likely use of foreign currency reserves?

How did the IMF step in to help Argentina in 1994?

The instruments with which central banks borrow reserves to increase the backing ratio to more than 100% are known as:

Financial crises tend to happen in pairs or triplets because:

The sudden collapse of a fixed exchange rate system is known as:

When analyzing problems in maintaining a fixed exchange rate system, simplifying assumptions must be made. Which of the following is NOT a simplifying assumption?

Among the solutions proposed for avoiding a foreign exchange crisis are all of the following, EXCEPT using: