Exam 6: Government Influence on Exchange Rates

In a freely floating exchange rate system, high U.S. inflation rate may be magnified. This is because the depreciation of the dollar would result in more expensive foreign imports, thus reducing foreign competition.

The Bretton Woods Agreement called for the establishment of a single European currency.

If a government wishes to stimulate its economy in the form of increased foreign demand for its country's products, it could attempt to weaken its currency.

During the period 1944-1971, the U.S. used a ____ system.

If a speculator expects that the Fed will intervene by exchanging dollars for Japanese yen, she would most likely ____ to capitalize on this intervention.

Assume Countries A, B, and C produce goods that are substitutes of each other and that these countries engage in trade with each other. Assume that Country A's currency floats against Country B's currency, and that Country C's currency is pegged to B's. If A's currency depreciates against B, then A's exports to C should ____, and A's imports from C should ____.

Assume that the Fed intervenes by exchanging dollars for euros in the foreign exchange market. This will cause an ____ U.S. dollars and an ____ euros.

In order to stimulate a stagnant economy, a government operating under a managed float may attempt to weaken its currency.

China's yuan is presently:

The monetary policy implemented by the European Central Bank always results in favorable effects on all countries in the eurozone.

The interest rate of a country with a currency board:

Which one is not a disadvantage of a freely floating exchange rate system?

Which of the following is an example of direct intervention in foreign exchange markets?

To force the value of the British pound to depreciate against the dollar, the Federal Reserve should:

A possible reason why China was less affected by the Asian crisis is that its government exerts more influence on private enterprise than the governments of other Asian countries.

If foreign investors fear that a peg may be broken because of fund outflows from that country, they may attempt to purchase more of that currency before the peg is broken.

The exchange rate mechanism (ERM) refers to the method of linking ____ currencies to each other within boundaries.