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Q. Explain why the dollar of the United States became the postwar world's key currency.
Answer:
1. The untimely convertibility of the U.S dollar in 1945.
2. The special position of the dollar in the Bretton Woods system.
3. The potency of the American economy relative to the devastated economies of Europe and Japan.
4. Central banks logically found it advantageous to hold their international reserves in the form of interest-bearing dollar assets.
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Q. Explain how the money markets of two countries are linked through the foreign exchange market. Answer: The financial policy actions by the Fed affect the U.S. interest rate
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Q. Explain the phenomenon of capital flight. Answer: The reserve defeat accompanying a devaluation scare is habitually labeled capital flight for the reason that the assoc
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