Fixed versus floating exchange rates, International Economics

Assignment Help:

1 Answer True or False. Brief explain your answer. No credit without explanation.

a Bretton Woods. During the Bretton Woods system countries with large current account surpluses were viewed by the market as candidates for devaluation?

b A country with relatively unstable money demand would find it advantageous to join a currency union at a lower level of monetary integration than would a country with relatively stable money demand.

c When real income decreases, the central bank can maintain the exchange rate fixed at E0 by purchasing foreign assets.

d Under the gold standard a perpetual surplus is impossible.

e Under the fixed rate regime foreign countries could hold their dollar exchange rates constant by setting their domestic interest rate equal to dollar interest rate.

2 Fixed versus Floating Exchange Rates.

Analyze a transitory increase in the foreign interest rate, R*. Under which type of exchange rate is there a smaller effect on output (fixed or floating)?

3 International Capital Market.

a How international trade in assets can make two countries better off?

b Explain Tobin's idea of \Don't put all your eggs in one basket."

c The following simple two-country question illustrates how countries are made better off by trade in assets. Imagine that there are two countries, Home and Foreign, and that residents of each own only one asset, domestic land yielding an annual harvest of kiwi fruit. Assume that the yield on the land is uncertain. Half the time, Home's land yields a harvest of 100 tons of kiwi fruit at the same time as Foreign's land yields a harvest of 50 tons. The other half of the time the outcomes are reversed. The Foreign's harvest is 100 tons, but the Home harvest is only

50. Suppose the two countries can trade shares in the ownership of their perspective assets.

Further assume that a Home (Foreign) resident that owns 25 percent of the Foreign (Domestic) land receives 25 percent of the annual Foreign (Domestic) kiwi fruit harvest. Calculate the expected value of kiwi fruit for each investor.

4 Use a figure to show and explain the effect of a currency devaluation on the economy under a Fixed Exchange Rate Regime.

5 Real and Monetary Shocks and the Choice of the Exchange Rate Regime

Using the DD-AA model compare and contrast how a exible and fixed exchange rate systems respond to real shocks (e.g. exogenous decrease in net exports). Include the relevant diagrams to support your answer.

6 Multiple Choice. Choose the one alternative that best completes the statement or answers the question. a Describe three types of gains from trades?

(a) trades of exchange rates for goods or services, trades of goods or services for property, and trades of gold for textiles

(b) trades of goods or services for goods or services, trades of goods or services for assets, and trades of assets for assets

(c) trades of imports for exports, trades of exports for imports, and trades of natural resources for financial assets

(d) None of the above.

b By fixing the exchange rate, the central bank gives up its ability to

(a) adjust taxes.

(b) increase government spending.

(c) inuence the economy through fiscal policy.

(d) depreciate the domestic currency.

(e) finuence the economy through monetary policy.

c People who are risk averse,

(a) value a collection of assets only on the basis of its expected returns.

(b) value a collection of assets only on the basis of the risk of that return.

(c) value a collection of assets not only on the basis of its expected returns but also on the basis of the risk of that return.

(d) no clear cut criteria exist.

(e) None of the above.

d Under the Gold standard, a country is said to be in balance of payments equilibrium when the current account balance is

(a) financed entirely by international lending without reserve movements.

(b) financed by international lending and with reserve movements.

(c) equal to zero.

(d) financed entirely by international lending and past gold reserves.

e What event started the Asian financial crisis in 1997?

(a) Indonesia's inability to pay its debts

(b) devaluation of Indonesia's currency

(c) Thailand's inability to pay its debts

(d) devaluation of Thailand's currency

(e) devaluation of Malaysia's currency


Related Discussions:- Fixed versus floating exchange rates

Income distribution effects of trade, Q. "The H.O. model remains useful as...

Q. "The H.O. model remains useful as a way to predict the income distribution effects of trade." Discus s. Answer: The Stolper-Samuelson theorem, one of the basic theorems ari

Wholesale price index and industrial production, Q. The following table in...

Q. The following table introduces the relationship between wholesale price index and industrial production changes between the years 1929 - 1935. What is the purpose of the given

Coordination of monetary policies and greater exchange rate, Q. What prompt...

Q. What prompted the EU countries to seek closer coordination of monetary policies and greater exchange rate stability in the late 1960s? Answer: 1. To improve Europe's role

Discuss effects of ongoing inflation based on ppp theory, Discuss the effec...

Discuss the effects of ongoing inflation based on the PPP theory. Answer:  Other things equivalent money supply growth at a constant rate eventually results in ongoing price le

Protectionism and free trade, why is international trade important for sout...

why is international trade important for south africa

Opportunity cost thoery, what are the criticisms of OPPORTUNITY COST THEORY...

what are the criticisms of OPPORTUNITY COST THEORY of international trade propounded by PROF.HABERLER and OHLIN

Explain the difficulties in naming the new european currency, Q. Expl...

Q. Explain the difficulties in naming the new European currency. Answer: Amongst the reasons: Maintenance the name ECU would be misleading the ECU depreciated sharply ag

Concept of comparative advantage, The Concept of Comparative Advantage is e...

The Concept of Comparative Advantage is explained below: To illustrate the concept of the comparative advantage, we take the instance of two equi-sized equi-endowment countries

Eco, Ask questionQuestion 1: Compute various indicators of the state of the...

Ask questionQuestion 1: Compute various indicators of the state of the labour market using the following information. Please show all steps of your calculation. If you do not, you

Important benefits enjoyes by companies through TRIPs, Describe the importa...

Describe the important benefits enjoyed by indian companies through TRIPs. Elaborate the main objective of WTO in global ecomommy

Write Your Message!

Captcha
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