Exam 9: Foreign Exchange Rate Determination

If the goal were to decrease the value of a country's currency - to fight an appreciation of the domestic currency in exchange for foreign currency - the central bank would:

The most visible roots of the crisis were in the excesses of capital inflows into Thailand extending credit to a variety of domestic investments and enterprises beyond what the Thai economy could support and creating an investment "bubble."

________ is defined as the spread of a crisis in one country to its neighboring countries and other countries with similar characteristics.

Describe the asset market approach to exchange rate determination.How is this consistent with economic theory of (say,security)prices in general?

The Asian Currency crisis appeared to begin in:

The balance of payments approach of exchange rate theory is largely dismissed by the academic community today,while the practitioner public still rely on different variations of the theory for their decision making.

The asset market approach to forecasting assumes that whether foreigners are willing to hold claims in monetary form depends on an extensive set of investment considerations.These include all but which of the following choices?

________,traditionally referred to as chartists,focus on price and volume data to determine past trends that are expected to continue into the future.

In 1991 the Argentine peso was fixed to the value of the U.S.dollar on a one-to-one basis.

Argentina's economic performance in the 1990s while their peso was pegged to the U.S.dollar can be characterized as ________ rates of inflation and ________ rates of unemployment.

________ is the active buying and selling of the domestic currency against foreign currencies.

An important thing to remember about foreign exchange rate determination is that parity conditions,asset approach,and balance of payments approaches are ________ theories rather than ________ theories.

By 2001,crisis conditions had revealed three very important underlying problems Argentina's economy EXCEPT:

The ________ approach states that the exchange rate is determined by the supply and demand for national currency stocks,as well as the expected future levels and rates of growth of monetary stock.

The ________ approach to the determination of spot exchange rates hypothesizes that the most important factors are the relative real interest rate and a country's outlook for economic growth and profitability.

Which of the following did NOT contribute to the exchange rate collapse in emerging markets in the 1990s?

The asset market approach to forecasting is not applicable to emerging markets.

Explain how a central bank would engage in direct intervention to decrease the value of its domestic currency.Since the 1970s it has been difficult for central banks alone to engage in direct intervention to alter the value of their domestic currency.Identify and explain at least two other activities in which a central bank could engage to alter the value of their domestic currency.

As economic conditions continued to deteriorate in Argentina by the end of 2001,banks suffered increasing runs.The government,fearing that the increasing financial drain on banks would cause their collapse,closed the banks for weeks.

The ________ provides a means to account for international cash flows in a standardized and systematic manner.