Exam 15: Exchange-Rate Systems and Currency Crises

Given an initial equilibrium in the money market and foreign exchange market, suppose the Federal Reserve $\underline { \text { decreases } }$ the money supply of the United States. Under a floating exchange rate system, the dollar would:

Given a two-country world, assume Canada and Sweden $\underline { \text { devalue } }$ their currencies by 20 percent. This would result in:

To help insulate their economies from inflation, currency depreciation, and capital flight, developing countries have implemented:

A "dirty float" occurs when a nation used central bank intervention in the foreign exchange market to promote a depreciation of its currency's exchange value, thus gaining a competitive advantage compared to its trading partners.

Today, special drawing rights (SDRs) represent the most important currency basket against which developing countries maintain pegged exchange rates.

Which exchange-rate system involves a "leaning against the wind" strategy in which short-term fluctuations in exchange rates are reduced $\underline { \text { without } }$ adhering to any particular exchange rate over the long run?

The crawling peg is a

Suppose that Japan maintains a pegged exchange rate that $\underline { \text { overvalues } }$ the yen. This would likely result in:

Figure 15.2 Market for the British Pound -Refer to Figure 15.2. Suppose that the United States increases its imports from England. Under a floating exchange rate system, the new equilibrium exchange rate would be:

Under a floating exchange-rate system, if the U.S. dollar $\underline { \text { depreciates } }$ against the Swiss franc:

Under a system of floating exchange rates, a U.S. trade $\underline { \text { deficit } }$ with Japan will cause:

The par values of most developing-country currencies are currently defined in terms of gold.

Smaller nations with relatively undiversified economies and large trade sectors tend to peg their currencies to one of the world's key currencies.

A $\underline { \text { surplus } }$ nation can $\underline { \text { reduce } }$ its payments imbalance by:

Which exchange-rate mechanism calls for $\underline { \text { frequent } }$ redefining of the par value by small amounts to remove a payments disequilibrium?

Assume that interest rates in London $\underline { \text { rise } }$ relative to those in Switzerland. Under a floating exchange-rate system, one would expect the pound (relative to the franc) to:

Small nations (e.g., Tanzania) with more than one major trading partner tend to peg the value of their currencies to:

A market-determined $\underline { \text { decrease } }$ in the dollar price of the pound is associated with:

Unlike floating exchange rates, fixed exchange rates are not characterized by par values and central bank intervention in the foreign exchange market.

Exchange rate controls