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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.
Question : (a) Differentiate between Transaction, economic risk and Translation risk in foreign exchange market. (use an illustrative and numerical example in each case. (b)
Q. Analyze the effects of devaluation on an economy. Answer: Devaluation basis a rise in output a rise in official reserves and an expansion of the money supply. A private cap
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