Why did the us withdraw form the bretton woods system

Assignment Help Financial Management
Reference no: EM13214453

1. Under what conditions will one observe floating exchange rates operating in the gold standard system

2. Many countries peg their exchange rates against the US dollar. As a result they are likely to settle their overseas payments through transfer and receipt of dollar balances held in US financial institutions. At the same time, the US Federal Reserve System rarely intervenes into the foreign exchange market. Would you expect eh absence of the Fed's participation in international transactions to have an effect on the US official reserve settlements balance ORS? Why or Why not?

3. Explain why the expectation of inflation in country A will lead to a higher nominal rate of interest on securities denominated in A'S currency, but have no effect the real rate or interest.

4. On March 14, 2009 the NY times reported that the Prime Minister of China expressed concern about the safety of China's $trillion investment in American Government debt, the worlds largest such holding, and urged the Obama administration to offer assurances that the securities would maintain their value. While economists dismiss the possibility of the US defaulting on its obligations, they say china could face steep losses in the event of a sharp rise in the US interest rates or a plunge in the value of the dollar.

A. For a number of years, China has had a current account surplus with the US, which it uses to finance the Purchase of US government debt. IF china were to stop purchasing US debt, what effect would it have on its exchange rate, real GDP, and current account?

B. Would China benefit from switching its holdings of US debt to the debt of other countries?

C. What economic polies might the US pursue to reassure the Prime Minister that his country will not face serious financial losses form holding US Debt?

D. What Information would be needed to determine if the benefits of such assurances are worth the cost?

5. Does an increase in foreign holdings of US government securities pose an economic danger to the buyer? Explain

6. Suppose the central bank of a small country under fixed exchange rates is faced with an increase in the foreign interest rate. What is the effect on its holding of international reserves? On its money supply? Can the central bank offset these effects through financial transactions?

7. The term "Original Sin" has been adopted to describe the practice of borrowing from abroad and promising to repay the interest and principal of the debt in foreign currency?

A. Why do debtor countries engage in the practice?

B. What are the dangers to debtors and creditors?

C. Does Original Sin transfer the cost of default from debtors to Creditors? Explain

D. Are there benefits to the debtor from engaging in original sin?

E. How might creditors protect themselves against original sin?

12. Devaluation of a country's currency may be undertaken to achieve three possible goals:

a. Reduction of a current account deficit

b. A higher level of real GDP.

c. Higher Government revenue from seignorage

Suppose that the devaluation is followed by an equi- proportionate increase in the domestic price level through wage and price indexation or commodity arbitrage. Will the above goals be met?

13. Suppose there is a permanent incase in the foreign interest rate. What happens to the economy under a floating exchange rate? How does your answer depend on whether the change reflects a rise in the foreign real interest rate in foreign inflationary expectations?

14. The constraints of the Gold standard are blamed by some economists for the severity of the 1929-33 worldwide economic contractions. Evaluate the argument sin support of this claim.

15. A small country faces three types of economic shock:

A. Increased Demand for Money Balances

B. Increased Foreign Rate of interest

C. Reduction in foreign Demand for exports

Analyze each shock to determine whether a hard peg fixed or a floating exchange rate would provide better protection against the shock.

16. Explain the role of the dollar in the operation of the Bretton Woods System.

A. Why did the US withdraw form the Bretton Woods System?

Was Bretton Woods preferable to the international monetary system that succeeded it?

Reference no: EM13214453

Questions Cloud

What is probability that the distance from house to school : The distance from a student's house to campus is a uniformly distributed random variable that ranges between 15 and 75 minutes. What is the probability that the distance from house to school will be between 20 and 40 minutes
Solve the equations for the equilibrium values of c and i : Assume that the following equations characterize a large open economy: (1) Y = 5,000 (2) Y = C + I + G + NX (3) C = 1/2(Y - T) (4) I = 2,000 - 100r (5) NX = 500 - 500? (6) CF = -100r (7) CF = NX (8) G = 1,500 (9) T = 1,000
Calculate the incremental npv of the lease agreement : Calculate the incremental NPV of the lease agreement and ascertain if the company should take out the lease.
Define molecules are present in relatively large proportions : What ions and/or molecules are present in relatively large proportions in a solution of the soluble ionic compound KCl (aq)?
Why did the us withdraw form the bretton woods system : What conditions will one observe floating exchange rates operating in the gold standard system and explain why the expectation of inflation in country A will lead to a higher nominal rate of interest on securities denominated in A'S currency, but h..
What is atc per unit for each level of output listed : Assume that the most efficient production technology available for making vitamin pills has the cost structure given in the following table. Note that output is measured as the number of bottles of vitamins produced per day and that costs include ..
Explain what is the mass of a single washer in milligrams : the mass of a box containing 1000 washers. The mass is 0.2932 kg. What is the mass of a single washer in milligrams? Write your answer as a decimal.
Define octane ratings are assigned to gasoline mixtures : Octane ratings are assigned to gasoline mixtures based on their ability to prevent knocking relative to isooctane. Estimate the energy released during the combustion of 1.00 mol of pure isooctane.
How have imporvements in computer technology affected : What impact would a change that shifts an economy's production possibilies curve outward have on the long run aggregate supply curve How have imporvements in computer technology affected production possibilities and the long run aggregate supply c..

Reviews

Write a Review

Financial Management Questions & Answers

  Foreign company acquisition

Acquisition by a foreign company and the effects of that decision and the results of foreign exchange in Euro and the exchange rate differences.

  Financial management for profit and non profit organizations

In this essay, we are going to discuss the issues of financial management in a non-profit organisation.

  Method for estimating a venture''s value

Evaluate venture's present value, cash and surplus cash and basic venture capital.

  Replacement analysis

This document show the Replacement Analysis of modling machine. Is replacement give profit to company or not?

  Business finance task - capital budgeting

Your company is considering using the payback period for capital-budgeting. Discuss the advantages and disadvantages of this technique.

  Analysis of the investment

In this project, you will focus on one of these: the additional cost resulting from the purchase of an apple press (a piece of equipment required to manufacture apple juice).

  Conduct a what-if analysis

Review the readings and media for this unit, including the Anthony's Orchard case study media. Familiarise yourself with the Anthony's Orchard company and its current situation.

  Determine operational expenditures

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.

  Personal financial management

How much will you have left over each half year if you adopt the latter course of action?

  Sources of finance for expansion into new foreign markets

A quoted company is considering several long-term sources of finance for expansion into new foreign markets.

  Long term financial planning

This assignment is designed for analyze Long term financial planning begins with the sales forecast and the key input in the long term fincial planning.

  Explain the role of fincial manager

This assignment explain the role of fincial manager, function of manger. And what are the motives of financial manager.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd