Question

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

Answer 1