Exam 19: The International Financial System

China began pegging its currency,the yuan,to the dollar in 1994.Because the yuan was ________ at the pegged exchange rate,the level of Chinese exports remained ________ than they would have been if the exchange rate were allowed to float freely.

Figure 19-6 -Refer to Figure 19-6.Which of the following would cause the change depicted in the figure above?

If the implied exchange rate between Big Mac prices in the United States and Poland is 2.13 zlotys per dollar,but the actual exchange rate between the United States and Poland is 3.16 zlotys per dollar,which of the following would you expect to see?

Both countries involved in a pegging of currency must agree to the terms of the pegging.

If the purchasing power of the dollar is less than the purchasing power of the British pound,purchasing power parity predicts that the exchange rate will

According to the theory of purchasing power parity,if the inflation rate in the United States is greater than the inflation rate in Canada,explain what should happen to the exchange rate between the U.S.dollar and the Canadian dollar.

Why might a country raise interest rates in the face of an exchange rate crisis?

Expanding,contracting,and managing the money supply is easier for a central bank under the gold standard.

Figure 19-4 -Refer to Figure 19-4.The equilibrium exchange rate is originally at A,$3/pound.Suppose the British government pegs its currency at $4/pound.Speculators expect that the value of the pound will drop and this shifts the demand curve for pounds to D2.If the government abandons the peg,the equilibrium exchange rate would be

Figure 19-8 -Refer to Figure 19-8.The equilibrium exchange rate is at A,$1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D2.After the shift,

Adoption of the euro as both a medium of exchange and unit of account in the EU countries serves to increase competition among European firms and decrease individual countries' monetary policy options when confronted by recessions and booms.

In a fixed exchange rate system,speculation regarding an expected revaluation or devaluation of a currency makes it more difficult to maintain the existing exchange rate.

What three real-world complications keep purchasing power parity from being a complete explanation of exchange rate fluctuations in the long run? Explain.

What are capital controls? Why might a financial crisis lead to a reconsideration of using capital controls,and what problems might result from the reinstatement of capital controls?

Which of the following is a drawback to having a common currency across countries,as in the European Union?

Figure 19-8 -Refer to Figure 19-8.The equilibrium exchange rate is originally at A,$1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D2.If the European Central Bank abandons the peg,the equilibrium exchange rate would be

Figure 19-12 -Refer to Figure 19-12.The graph above depicts supply and demand for U.S.dollars during a trading day,where the quantity is millions of dollars.In order to support a fixed exchange rate of 0.30 pounds per dollar,the U.S.central bank must

The three most important financial centers in the world today are New York,London,and Tokyo.