Question

QUESTION 6 Suppose a country wants a fixed exchange rate for its currency above the market...

QUESTION 6

  1. Suppose a country wants a fixed exchange rate for its currency above the market exchange rate. It will,

a.

run a narrow balance of payments surplus

b.

use up some of its foreign currency reserves to do so

c.

both A and B

d.

neither A nor B

QUESTION 7

  1. Suppose a country maintains a fixed exchange rate for its currency below the market exchange rate. It will,

a.

run a narrow balance of payments surplus

b.

build up its foreign currency reserves

c.

both A and B

d.

neither A nor B

QUESTION 8

  1. Suppose a country wants to have both full control over its domestic monetary policy (has "independence") and the free movement of capital into and out of the country. This country will have to forgo having a floating exchange rate for its currency.

True

False

QUESTION 9

  1. If a country wants to have both a fixed exchange rate and full control over its domestic monetary policy (has "independence"), it will have to limit the flow of capital into and out of the country.

True

False

QUESTION 10

  1. Assume currency speculators take actions in currency markets to capture currency appreciation gains.

Suppose Currency Speculator Smith changes her thoughts about the beliefs of other currency speculators. Previously she thought that other currency speculators believed that Currency C would neither appreciate nor depreciate in the near future. Now Smith thinks that other currency speculators believe that Currency C will appreciate in the near future.

In this case, Smith thinks that other currency speculators will begin buying Currency C now to capture currency appreciation gains. Because Smith has changed her thoughts about other speculator's beliefs, she would buy Currency C now.  

True

False

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose a country has fixed exchange rate and no capital controls. The country has kept the...
Suppose a country has fixed exchange rate and no capital controls. The country has kept the value of its currency below its market level. (a) Why is it easier for a country to undervalue its currency than to overvalue it? (b) What is the (intended) effect of this policy on current account, capital account, overall balance of payments and international reserves? (c) What will be the effect on current account, capital account, balance of payments and international reserves if the...
Question 13 1. Suppose that goods in a foreign country seem cheap from a domestic country...
Question 13 1. Suppose that goods in a foreign country seem cheap from a domestic country perspective. This means that, a. the domestic currency is relatively weak and the real exchange rate for the domestic currency is less than 1 b. the domestic currency is relatively weak and the real exchange rate for the domestic currency is greater than 1 c. the domestic currency is relatively strong and the real exchange rate for the domestic currency is less than 1...
Question: A significant increase in inflation in a country causes, a. investors to sell domestic assets...
Question: A significant increase in inflation in a country causes, a. investors to sell domestic assets b. foreign exchange market pressure to depreciate the domestic currency c. currency traders to sell the domestic currency d. all of the above Question 2 Capital flight from a domestic country tends to cause, a. selling of the domestic country's currency b. weakening of the domestic country's currency c. greater difficulty of domestic borrowers in repaying debt denominated in a foreign currency d. all...
Suppose there is a large foreign country operating under fixed exchange rate regime. It devaluates its...
Suppose there is a large foreign country operating under fixed exchange rate regime. It devaluates its currency by increasing its money supply. How does this affect real exchange rate, net exports, investments, consumption of our small domestic economy in short run and long run?
#1. Australia runs a fixed exchange rate regime. You work for a hedge fund. You, and...
#1. Australia runs a fixed exchange rate regime. You work for a hedge fund. You, and many other traders in the hedge fund community, believe that Australia is about to revalue its currency (the AUD) against the US dollar. Thus, you believe that the AUD will become stronger against the US dollar in the future, although the current spot exchange rate remains unchanged. Which of the following is likely to occur? A. Hedge funds will take short positions in the...
TRUE FALSE. If false CORRECT the wrong word/words An increase in the nominal exchange rate ($...
TRUE FALSE. If false CORRECT the wrong word/words An increase in the nominal exchange rate ($ per Euro) will make the dollar less expensive to foreigners If iD= 10% and iF = 5%, for investors to be indifferent between holding both one year financial assets, they should expect expect that over the next year the domestic currency will appreciate. A trade deficit implies that that country will require a surplus in the financial account compensating that deficit. An increase in...
"Suppose Mexico wants to fix its exchange rate relative to the US dollar. Suppose now the...
"Suppose Mexico wants to fix its exchange rate relative to the US dollar. Suppose now the Fed raises interest rates. If initially there is not a response in Mexican interest rates, what will happen initially to the nominal mexican peso (MXN) - dollar (USD) exchange rate?" "US bonds become less attractive, relative to Mexican bonds, therefore there will be an increase in demand for Mexican bonds and Mexican currency. The Mexican Central Bank (Banco de México) will buy USD at...
13. The Bretton Woods system fixed the rate of exchange of every currency to: a. The...
13. The Bretton Woods system fixed the rate of exchange of every currency to: a. The U.S. dollar. b. The British pound. c. The Japanese yen. d. Each other. 14. In any given period of time, a nation’s “balance of payments” is: A. Its imports minus its exports. B. The amount of foreign investment coming into the country. C. The amount of gold it gains or loses. D. The difference between its money inflows and outflows. 17. The risk that...
Suppose that the People’s Bank of China wishes to peg the rate of exchange of its...
Suppose that the People’s Bank of China wishes to peg the rate of exchange of its currency, the yuan, in terms of the U.S. dollar. In each of the following situations, should it add to or subtract from its dollar foreign exchange reserves? Why? a. U.S. parents worrying about safety begin buying fewer Chinese-made toys for their children. b. U.S. interest rates rise relative to interest rates in China, so Chinese residents seek to purchase additional U.S. financial assets. c....
Question 1 (1 point) Which of the following can cause relative PPP to NOT hold in...
Question 1 (1 point) Which of the following can cause relative PPP to NOT hold in the short run? Question 1 options: frictionless markets state-sponsored monopolies types of labor and unique skill sets than can only be found in one area or certain areas shipping costs Question 2 (1 point) If relative PPP holds, absolute PPP must hold. Question 2 options: True False Question 3 (1 point) In 2019, the US had the highest nominal GDP in the world, before...