Exam 20: Government Policies Toward the Foreign Exchange Market

If a country with a fixed exchange rate faces a fundamental disequilibrium because it has a large, ongoing surplus in it official settlements balance, which of the following policies can it employ to try to achieve external balance?

Consider that Britain is trying to maintain a fixed exchange rate with respect to the U.S. dollar. However, the present situation in the foreign exchange market is conducive for the British pound to depreciate with respect to the U.S. dollar. Pressures are there to make British pounds appreciate and not depreciate. Which of the following interventions is most likely in this situation?

Which of the following statements is true?

Consider that Britain is trying to maintain a fixed exchange rate with respect to the U.S. dollar. However, the present situation in the foreign exchange market is conducive for the British pound to depreciate with respect to the U.S. dollar. A fully sterilized intervention in the foreign exchange market by the British government is expected to cause:

Suppose under a gold standard the price of gold in the United States is $450 per ounce and the price of gold in the United Kingdom is 200£ per ounce. The exchange rate is thus:

_____ are in place when a country's government places restrictions on the conversion of the domestic currency into foreign currency or vice versa.

The special drawing right (SDR) is a basket of three currencies: the British pound, the U.S. dollar, and the Japanese yen.

A country with a fixed exchange rate experiences downward pressure on the exchange rate value of its currency. The central bank chooses to intervene in the market to maintain its fixed exchange rate. How would the central bank go about intervening? If the pressures for the currency to depreciate persist for a long period, even after successive interventions in the foreign exchange market, would it be difficult to maintain the fixed exchange rate? Why or why not? Give an example of a country that attempted to maintain its exchange rate in the face of downward pressures. What was the result?

"Dollarization" can be classified as a form of a fixed exchange rate.

Consider that Britain is trying to maintain a fixed exchange rate with respect to the U.S. dollar. However, the present situation in the foreign exchange market is conducive for the British pound to depreciate with respect to the U.S. dollar. The British government can only intervene in the foreign exchange market for a limited period of time because:

Which of the following is NOT one of the rules for a gold standard?

Describe a situation in which a one-way speculative gamble would be possible and explain the effects that this type of speculation would have on a country trying to maintain its fixed exchange rate.

During 2005-2008, the Chinese currency gradually depreciated against the U.S. dollar.

The success of the gold standard in the period before World War I is attributed partly to the high degree of tranquility in global markets.

Consider that Britain is trying to maintain a fixed exchange rate with respect to the U.S. dollar. However, the present situation in the foreign exchange market is conducive for the British pound to depreciate with respect to the U.S. dollar. If the British government uses unsterilized intervention in the foreign exchange market, then it is expected that:

If a country's currency is _____, then the country can borrow from other countries almost without limit by issuing assets that will be held by the central banks of other countries.