Question

1. When the U.S. dollar depreciates relative to other major currencies, what would happen to exports and imports of goods and services from and to the United States? Is it good for domestic firms exporting goods and services? Is it good for domestic portfolio investors who may purchase foreign assets?

2. When the Federal Reserve conducts an expansionary monetary policy (increasing its monetary base), what would happen to the domestic money supply? Does this also affect the supply of dollar assets in the currency market? Does this depreciate the US dollar?

3. What are the factors that influence the demand curve in the current market? Briefly explain.

4. If nominal interest rates in the US rise but real interest rates fall, what will happen to the U.S. dollar exchange rates?

5-6. Explain the following terminologies: the law of one price, purchasing power parity (PPP), sterilized and unsterilized intervention in the currency market.

7. Explain the following terminologies: capital account, current account, and balance of payment.

8. Discuss the advantage and disadvantages of fixed exchange rate regime, and flexible exchange rate regime.

9-10. What is capital control? How is it different from tariff, subsidies and trade ban? Why do you think small open economies need to rely on this capital control measure, rather than relying on market-friendly sterilization intervention in the currency market? What is the potential benefit and cost of this capital control? Discuss and write a short essay.

Answer 1