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Q. Define Exchange rate systems?
Different nations have different exchange rate systems. The most significant characteristic of an exchange rate system is to what degree the country is trying to control exchange rate.
The most common exchange rate system in western world during previous century was fixed exchange rate system. Up to 1930s, most currencies were pegged to price of gold (gold standard). After Second World War a new system was created, so-called Bretton Woods system, where every currency in the system was pegged to US dollar (USD). After the collapse of this system in 1970s, many currencies, for instance, USD, have been flexible.
Question 1: Consider a two-period, two-person pure exchange economy. Utility functions and endowments are given as follows. u1(x0; x1) = (x0x1)2 and e1 = (18; 4) u2(x0; x1) = ln x0
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