Exam 19:Exchange Rate Policy and the Central Bank

Consider the following: an investor in the U.S. is pondering a one-year investment. She can purchase a domestic bond for $1,000 that has an interest rate of i or she can purchase a bond in England for 1,500 British pounds (£) that pays an interest rate of if. The current exchange rate is $1.50/£ . She considers the bonds to be of equal risk. If i = if, the expected returns are not equal. What do you know?

During the 1990s, the country of Chile required foreigners wishing to invest in the country to make a one-year, zero-interest deposit in the Chilean central bank equal to at least 20 percent of the investment. This is an example of:

How would the impact on the exchange rate differ if the Fed were to sell U.S. Treasury securities instead of selling an equal amount (in $ terms) of euros?

If the Fed decides to maintain a fixed euro/dollar exchange rate when they purchase euros:

Assuming the free flow of capital across borders, if country A wants to fix its exchange rate with country B, then:

The International Monetary Fund's primary role under the Bretton Woods System was to be:

If the U.S. were to revert to a gold standard, trade deficits would:

If the U.S. were to revert to a gold standard, trade deficits would:

What are the pros and cons of a currency board?

Most economic historians believe that:

Everything else equal, if the Fed decided to fix the euro/dollar exchange rate, what would be the impact on the interest rate in the U.S. if the euro started to appreciate in value and why?

China has used its current account surplus to:

If the exchange rate between the Canadian dollar and the American dollar was fixed at 1.30 Canadian dollars per U.S. dollar and investors perceived Canadian bonds to be equal in value and risk to U.S. bonds, if the U.S. bonds are selling for $1,000 and have a 5 percent interest rate, assuming capital flows freely between the two countries what will be the price and the interest rate of the Canadian bonds?

If foreigners are restricted in their ability to buy investments in a country then that government is imposing:

When arbitrage occurs across countries with a flexible exchange rate and when the bonds in each country are identical and there are no barriers to capital flows then the:

When arbitrage occurs across countries with flexible exchange rates and when the bonds in each country are identical and there are no barriers to capital flows:

International capital mobility:

When a country operates with a currency board, the central bank's sole objective is to:

If the Fed desired to fix the euro/dollar exchange rate, they would have to:

Dollarization is associated with each of the following, except: