Question 1

Industrial countries are not usually involved in currency bailouts since they are not likely to be affected by the devaluation of another country's currency.

Accepted Answer

Industrial countries can be affected by the devaluation of another country's currency, especially if they have significant economic ties with that country. In such cases, they may participate in currency bailouts to prevent negative spillover effects on their own economy.

Question 2

Under a fixed exchange rate regime, what will happen to the balance of payments for the United States and Mexico when the demand for Mexican goods rises? What is the only possible solution to this problem, given the fixed exchange rate?

Accepted Answer

The answer of Under a fixed exchange rate regime, what...

Question 3

How can trade policy, fiscal policy, and monetary policy be used to support fixed exchange rates when there is a surplus of U.S.dollars?

Accepted Answer

The answer of How can trade policy, fiscal policy, and...

Question 4

Explain what economists mean when they say that the United States is a net debtor nation.Identify a potential problem and a positive aspect associated with this status.

Accepted Answer

The answer of Explain what economists mean when they say...

Question 5

Use a model of the dollar-euro foreign exchange market to illustrate how the value of the dollar is determined in terms of the euro.Identify two factors that would increase the value of the dollar in terms of the euro.

Accepted Answer

The answer of Use a model of the dollar-euro foreign...

Question 6

In a floating exchange rate system, the capital account balance equals the negative of the current account balance.

Accepted Answer

The answer of In a floating exchange rate system, the...

Question 7

State the case for and the case against currency bailouts.

Accepted Answer

The answer of State the case for and the case...

Question 8

Explain the forces that can cause an exchange rate to change.

Accepted Answer

The answer of Explain the forces that can cause an...

Question 9

Under a flexible exchange rate system, there is no need for foreign exchange reserves.

Accepted Answer

The answer of Under a flexible exchange rate system, there...

Question 10

If there are no reserves, domestic adjustments to payment imbalances under fixed exchange rates require surplus countries to forsake full employment and deficit countries to forsake price stability.

Accepted Answer

Under fixed exchange rates, deficit countries typically need to adjust by reducing demand to restore balance, which may impact employment, while surplus countries are encouraged to increase demand, which can affect price stability. The statement incorrectly assigns the consequences of adjustments.

Quiz 22: International Finance