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

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Aruba pegs its currency (the Aruban florin) to the U.S. dollar at a rate of Af 2 = $US1. Suppose that the actual exchange rate is equal to this pegged rate. Which of the following best describes the effect on Aruba's money supply from purchasing dollars?

(Multiple Choice)

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Question 101

(Figure: Central Bank Balance Sheet) All points on the fixed line (XZ) are so named because:

(Multiple Choice)

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Question 102

If domestic credit is constant and the money supply changes, then:

(Multiple Choice)

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Question 103

How was Argentina affected by the Tequila Crisis in Mexico in 1994?

(Multiple Choice)

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Question 104

When a country adopts a currency board system:

(Multiple Choice)

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Question 105

How did the Tequila Crisis eventually turn out?

(Multiple Choice)

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Question 106

Anticipating the outcome of a peg, economists believe the stable condition is a situation in which combinations of investor beliefs and government actions coincide. Such a condition is called:

(Multiple Choice)

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Question 107

When output falls or the foreign rate of interest rises, what must the central bank do and why?

(Multiple Choice)

4.7/5

(37)

Question 108

Aruba pegs its currency (the Aruban florin) to the U.S. dollar at a rate of Af 2 = $US1. Suppose that the actual exchange rate is equal to this pegged rate. Which of the following best describes the effect on Aruba's interest rates from purchasing dollars?

(Multiple Choice)

4.8/5

(32)

Question 109

When the backing ratio is higher, the peg is:

(Multiple Choice)

4.7/5

(37)

Question 110

If investors are aware of problems, they launch a __ attack on the currency and the central bank is forced _.

(Multiple Choice)

4.7/5

(30)

Question 111

Consider an economy with a fixed exchange rate and money supply equal to 2 billion pesos. The country has 1 billion in reserves and 1 billion in domestic credit. If as a result of some exogenous events, foreign interest rate increases, then the central bank in the home country:

(Multiple Choice)

4.8/5

(32)

Question 112

Expected depreciation threatens a peg because of all the following, EXCEPT:

(Multiple Choice)

4.9/5

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Question 113

The likelihood of an exchange rate crisis is more than ___ times higher during a default crisis.

(Multiple Choice)

4.9/5

(36)

Question 114

(Figure: Central Bank Balance Sheet) All points on the floating line are so named because:

(Multiple Choice)

4.8/5

(38)

Question 115

Assume the money supply is backed by bonds and reserves, and the exchange rate is pegged. If the demand for money rises, how might the central bank maintain the peg?

(Multiple Choice)

4.8/5

(44)

Question 116

A recent phenomenon is the tendency of emerging market economies to accumulate excess foreign currency reserves so that their backing ratios exceed 100%. What possible reasons could explain this activity? Is it a sound economic policy? Why or why not?

(Essay)

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(41)

Question 117

Aruba pegs its currency (the Aruban florin) to the U.S. dollar at a rate of Af 2 = $US1. Suppose that the actual exchange rate is equal to this pegged rate. Suppose that Aruba's money supply is Af 20 billion and Aruba's central bank holds $5 billion of dollar reserves and Af 10 billion of domestic bonds. What is the backing ratio for Aruban florins?

(Multiple Choice)

4.9/5

(42)

Question 118

(Table: Central Bank Balance Sheet) From the information given, what can we can determine the backing ratio to be?

(Multiple Choice)

4.8/5

(36)

Question 119

Whenever the market believes there will be a depreciation (the peg will break) then:

(Multiple Choice)

4.9/5

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Question 120

Showing 101 - 120 of 148

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

Aruba pegs its currency (the Aruban florin) to the U.S. dollar at a rate of Af 2 = $US1. Suppose that the actual exchange rate is equal to this pegged rate. Which of the following best describes the effect on Aruba's money supply from purchasing dollars?

(Figure: Central Bank Balance Sheet) All points on the fixed line (XZ) are so named because:

If domestic credit is constant and the money supply changes, then:

How was Argentina affected by the Tequila Crisis in Mexico in 1994?

When a country adopts a currency board system:

How did the Tequila Crisis eventually turn out?

Anticipating the outcome of a peg, economists believe the stable condition is a situation in which combinations of investor beliefs and government actions coincide. Such a condition is called:

When output falls or the foreign rate of interest rises, what must the central bank do and why?

Aruba pegs its currency (the Aruban florin) to the U.S. dollar at a rate of Af 2 = $US1. Suppose that the actual exchange rate is equal to this pegged rate. Which of the following best describes the effect on Aruba's interest rates from purchasing dollars?

When the backing ratio is higher, the peg is:

If investors are aware of problems, they launch a ______ attack on the currency and the central bank is forced _____.

Consider an economy with a fixed exchange rate and money supply equal to 2 billion pesos. The country has 1 billion in reserves and 1 billion in domestic credit. If as a result of some exogenous events, foreign interest rate increases, then the central bank in the home country:

Expected depreciation threatens a peg because of all the following, EXCEPT:

The likelihood of an exchange rate crisis is more than ___ times higher during a default crisis.

(Figure: Central Bank Balance Sheet) All points on the floating line are so named because:

Assume the money supply is backed by bonds and reserves, and the exchange rate is pegged. If the demand for money rises, how might the central bank maintain the peg?

A recent phenomenon is the tendency of emerging market economies to accumulate excess foreign currency reserves so that their backing ratios exceed 100%. What possible reasons could explain this activity? Is it a sound economic policy? Why or why not?

(Table: Central Bank Balance Sheet) From the information given, what can we can determine the backing ratio to be?

Whenever the market believes there will be a depreciation (the peg will break) then:

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Trade and Resources: the Heckscher-Ohlin Model

Movement of Labor and Capital Between Countries

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Import Tariffs and Quotas Under Perfect Competition

Import Tariffs and Quotas Under Imperfect Competition

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Introduction to Exchange Rates and the Foreign Exchange Market

Exchange Rates I: the Monetary Approach in the Long Run

Exchange Rates II: the Asset Approach in the Short Run

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Balance of Payments II: Output, Exchange Rates, and Macroeconomic Policies in the Short Run

Fixed Versus Floating: International Monetary Experience

The Euro

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If investors are aware of problems, they launch a __ attack on the currency and the central bank is forced _.