Question 1

Figure 19-5 
-Refer to Figure 19-5.Suppose the pegged exchange rate is $0.11/yuan.Because of safety concerns and numerous product recalls,U.S.consumers lower their demand for Chinese products.Using the figure above,this would

Accepted Answer

The answer of Figure 19-5 
-Refer to Figure 19-5.Suppose the...

Question 2

Although the pegged exchange rate between the yuan and the dollar has undervalued the yuan,China had been reluctant to abandon the peg for fear that abandoning the peg would

Accepted Answer

Abandoning the peg, which keeps the yuan artificially low, would make Chinese goods more expensive abroad, thus reducing exports and potentially slowing economic growth.

Question 3

Under pressure from Japan,the United States,and Europe,China announced it switched from pegging the yuan against the dollar to linking the value of the yuan to a 'basket' of currencies.The result of this change was

Accepted Answer

By linking the value of the yuan to a basket of currencies, the yuan's value became more flexible and responsive to the market, causing it to increase slightly relative to the dollar. However, this change was not significant enough to remove the trade imbalance between the United States and China or to dramatically spur Chinese exports.

Question 4

All else being equal,if the rate of growth in productivity in Spain is greater than the rate of growth in productivity in the United States,the euro

Accepted Answer

When the rate of productivity growth in one country is greater than another country, it is a sign that the first country's economy is growing faster and becoming more competitive. This can lead to increased demand for the currency of that country, causing it to appreciate relative to other currencies. Therefore, if the rate of growth in productivity in Spain is greater than in the United States, the euro will increase in value relative to the U.S. dollar.

Question 5

When foreign investors in Thailand began to realize that Thailand could not maintain its peg to the dollar indefinitely,they began to sell off their investments in Thailand and exchange the baht they received for dollars.This reduction in investment by foreigners is termed

Accepted Answer

The term for the reduction in investment by foreigners and their conversion of baht to dollars is known as capital flight. This is a common occurrence when investors lose confidence in a country's economy and begin to withdraw their investments, causing a decrease in demand for that country's currency.

Question 6

The currency adopted by most countries in ________ is referred to as the euro.

Accepted Answer

The euro is adopted by most countries in Western Europe, including major economies such as Germany, France, and Italy. Eastern Europe generally has its own currencies, such as the Polish zloty and the Hungarian forint. Asia has its own currencies as well, such as the Japanese yen, Chinese yuan, and Indian rupee. Southern Europe and Northern Africa have some countries that use the euro, but not as many as Western Europe.

Question 7

How were countries whose industries competed with Chinese industry affected by a yuan that was pegged to the dollar?

Accepted Answer

When the yuan is pegged to the dollar at a lower rate than its true value, it becomes undervalued, which means that Chinese exports are cheaper than they would be if the yuan was allowed to float freely. This makes it more difficult for other countries to compete with Chinese industry.

Question 8

What factors are most important for determining exchange rate fluctuations in the long run?

Accepted Answer

All three factors (relative price levels, relative rates of productivity growth, and preferences for domestic and foreign goods) are important determinants of exchange rate fluctuations in the long run. Relative price levels influence the purchasing power parity (PPP) theory of exchange rates, which suggests that the exchange rate should adjust to equalize the price of a similar basket of goods in different countries. Relative rates of productivity growth can affect a country's competitiveness and therefore its exports which can impact its currency value. Preferences for domestic and foreign goods can lead to changes in import and export patterns, which in turn can affect the trade balance and a country's currency value. Therefore, all three factors play a significant role in determining exchange rate fluctuations in the long run.

Question 9

Figure 19-5 
-Refer to Figure 19-5.Suppose the Chinese government decides to abandon pegging the yuan to the dollar at a rate which undervalues the yuan.Using the figure above,the equilibrium exchange rate would be ________ and Chinese exports to the United States would ________ in price.

Accepted Answer

The answer of Figure 19-5 
-Refer to Figure 19-5.Suppose the...

Question 10

Figure 19-5 
-Refer to Figure 19-5.The Chinese government pegs the yuan to the dollar,at one of the specified exchange rates on the graph,such that it overvalues its currency.Using the figure above,this would generate

Accepted Answer

The answer of Figure 19-5 
-Refer to Figure 19-5.The Chinese...

Question 11

Figure 19-5 
-Refer to Figure 19-5.Suppose the pegged exchange rate is $0.14/yuan and U.S.consumers increase their demand for Chinese products.Using the figure above,this would

Accepted Answer

When U.S. consumers increase their demand for Chinese products, they need more yuan to purchase these goods. This increases the demand for yuan, shifting the demand curve to the right. At the pegged exchange rate, this results in a decrease in the surplus of Chinese yuan because more yuan are being demanded by U.S. consumers, reducing the excess supply of yuan at the pegged rate.

Question 12

Firms in Thailand that had borrowed dollars while the baht was pegged to the dollar faced interest payments that were ________ than they had planned because the baht had been pegged ________ the equilibrium exchange rate for the baht.

Accepted Answer

The answer of Firms in Thailand that had borrowed dollars...

Question 13

China began pegging its currency,the yuan,to the dollar in 1994.Because the yuan has been ________ at the pegged exchange rate,the Chinese government ________ its reserves of dollars as the government purchased more ________ to maintain the pegged exchange rate.

Accepted Answer

The question states that the currency, yuan, has been pegged to the dollar. If the yuan is undervalued, it means that it is trading at a lower exchange rate than its actual value. To maintain this undervalued exchange rate, the Chinese government would have to increase its reserves of dollars to buy yuan in the foreign exchange market. Therefore, option A is the correct answer.

Question 14

An increase in the value of the U.S.dollar relative to the Japanese yen would be ________ for Japanese owners of U.S.houses who wish to sell those houses,and ________ for Japanese manufacturers operating factories in the United States that export their products back to Japan.

Accepted Answer

An increase in the value of the U.S. dollar relative to the Japanese yen means that when Japanese owners of U.S. houses sell those houses, they will receive more yen after converting the dollars from the sale, which is beneficial for them. However, for Japanese manufacturers operating factories in the U.S. and exporting products back to Japan, their products become more expensive in yen terms, potentially reducing their competitiveness in the Japanese market, which is bad news.

Question 15

If one U.S.dollar could be exchanged for one Australian dollar in 1970,and one U.S.dollar can now be exchanged for 0.98 Australian dollars,which of the following is true?

Accepted Answer

The answer of If one U.S.dollar could be exchanged for...

Question 16

If a country sets a pegged exchange rate that is above the equilibrium exchange rate,how can the country maintain the peg?

Accepted Answer

If a country sets a pegged exchange rate that is above the equilibrium exchange rate, it means that its domestic currency is overvalued. This makes the country's exports more expensive and imports cheaper, leading to a trade deficit. To maintain the peg, the country needs to sell its domestic currency and buy foreign currency. This can be done by purchasing surplus domestic currency at the pegged rate, which will decrease the supply of domestic currency and increase the supply of foreign currency in the foreign exchange market. As a result, the exchange rate will be stabilized at the pegged rate. Option B is incorrect because selling surplus domestic currency will increase the supply of domestic currency, which will further depreciate the exchange rate. Option C is incorrect because purchasing surplus domestic currency at the equilibrium exchange rate will not help maintain the peg. Option D is incorrect because increasing the pegged exchange rate will only exacerbate the overvaluation problem and make it more difficult to maintain the peg.

Question 17

Destabilizing speculation refers to

Accepted Answer

Destabilizing speculation refers to the actions of investors who sell a country's currency in anticipation of buying it back later at a lower price. This can lead to a depreciation of the currency and destabilize the country's economy.

Question 18

During the Chinese experience with pegging the yuan to the dollar,the yuan was undervalued.As a result,

Accepted Answer

The answer of During the Chinese experience with pegging the...

Question 19

Which of the following did not help Thailand maintain its peg against the dollar in the 1990s?

Accepted Answer

Foreigners selling off new investments in Thailand would have put downward pressure on the baht, making it difficult to maintain the peg. The other three options (borrowing from the IMF, buying baht on the foreign exchange market, and increasing domestic interest rates) would have helped support the baht and maintain the peg.

Question 20

As foreign investors began to sell off investments they had made in Thailand,they traded in their baht for dollars.The result of this was

Accepted Answer

As foreign investors sell their investments in Thailand and trade in baht for dollars, there is an increased supply of baht in foreign exchange markets. According to the law of supply and demand, an increase in supply leads to a decrease in price or value. Therefore, the pressure on the value of the baht is to decline.

Quiz 19: The International Financial System

Figure 19-5 -Refer to Figure 19-5.Suppose the pegged exchange rate is $0.11/yuan.Because of safety concerns and numerous product recalls,U.S.consumers lower their demand for Chinese products.Using the figure above,this would

Although the pegged exchange rate between the yuan and the dollar has undervalued the yuan,China had been reluctant to abandon the peg for fear that abandoning the peg would

Under pressure from Japan,the United States,and Europe,China announced it switched from pegging the yuan against the dollar to linking the value of the yuan to a 'basket' of currencies.The result of this change was

All else being equal,if the rate of growth in productivity in Spain is greater than the rate of growth in productivity in the United States,the euro

When foreign investors in Thailand began to realize that Thailand could not maintain its peg to the dollar indefinitely,they began to sell off their investments in Thailand and exchange the baht they received for dollars.This reduction in investment by foreigners is termed

The currency adopted by most countries in ________ is referred to as the euro.

How were countries whose industries competed with Chinese industry affected by a yuan that was pegged to the dollar?

What factors are most important for determining exchange rate fluctuations in the long run?

Figure 19-5 -Refer to Figure 19-5.Suppose the Chinese government decides to abandon pegging the yuan to the dollar at a rate which undervalues the yuan.Using the figure above,the equilibrium exchange rate would be and Chinese exports to the United States would in price.

Figure 19-5 -Refer to Figure 19-5.The Chinese government pegs the yuan to the dollar,at one of the specified exchange rates on the graph,such that it overvalues its currency.Using the figure above,this would generate

Figure 19-5 -Refer to Figure 19-5.Suppose the pegged exchange rate is $0.14/yuan and U.S.consumers increase their demand for Chinese products.Using the figure above,this would

Firms in Thailand that had borrowed dollars while the baht was pegged to the dollar faced interest payments that were than they had planned because the baht had been pegged the equilibrium exchange rate for the baht.

China began pegging its currency,the yuan,to the dollar in 1994.Because the yuan has been at the pegged exchange rate,the Chinese government its reserves of dollars as the government purchased more to maintain the pegged exchange rate.

An increase in the value of the U.S.dollar relative to the Japanese yen would be for Japanese owners of U.S.houses who wish to sell those houses,and for Japanese manufacturers operating factories in the United States that export their products back to Japan.

If one U.S.dollar could be exchanged for one Australian dollar in 1970,and one U.S.dollar can now be exchanged for 0.98 Australian dollars,which of the following is true?

If a country sets a pegged exchange rate that is above the equilibrium exchange rate,how can the country maintain the peg?

Destabilizing speculation refers to

During the Chinese experience with pegging the yuan to the dollar,the yuan was undervalued.As a result,

Which of the following did not help Thailand maintain its peg against the dollar in the 1990s?

As foreign investors began to sell off investments they had made in Thailand,they traded in their baht for dollars.The result of this was

Quiz 19: The International Financial System

Figure 19-5 -Refer to Figure 19-5.Suppose the pegged exchange rate is $0.11/yuan.Because of safety concerns and numerous product recalls,U.S.consumers lower their demand for Chinese products.Using the figure above,this would

Although the pegged exchange rate between the yuan and the dollar has undervalued the yuan,China had been reluctant to abandon the peg for fear that abandoning the peg would

Under pressure from Japan,the United States,and Europe,China announced it switched from pegging the yuan against the dollar to linking the value of the yuan to a 'basket' of currencies.The result of this change was

All else being equal,if the rate of growth in productivity in Spain is greater than the rate of growth in productivity in the United States,the euro

When foreign investors in Thailand began to realize that Thailand could not maintain its peg to the dollar indefinitely,they began to sell off their investments in Thailand and exchange the baht they received for dollars.This reduction in investment by foreigners is termed

The currency adopted by most countries in ________ is referred to as the euro.

How were countries whose industries competed with Chinese industry affected by a yuan that was pegged to the dollar?

What factors are most important for determining exchange rate fluctuations in the long run?

Figure 19-5 -Refer to Figure 19-5.Suppose the Chinese government decides to abandon pegging the yuan to the dollar at a rate which undervalues the yuan.Using the figure above,the equilibrium exchange rate would be ________ and Chinese exports to the United States would ________ in price.

Figure 19-5 -Refer to Figure 19-5.The Chinese government pegs the yuan to the dollar,at one of the specified exchange rates on the graph,such that it overvalues its currency.Using the figure above,this would generate

Figure 19-5 -Refer to Figure 19-5.Suppose the pegged exchange rate is $0.14/yuan and U.S.consumers increase their demand for Chinese products.Using the figure above,this would

Firms in Thailand that had borrowed dollars while the baht was pegged to the dollar faced interest payments that were ________ than they had planned because the baht had been pegged ________ the equilibrium exchange rate for the baht.

China began pegging its currency,the yuan,to the dollar in 1994.Because the yuan has been ________ at the pegged exchange rate,the Chinese government ________ its reserves of dollars as the government purchased more ________ to maintain the pegged exchange rate.

An increase in the value of the U.S.dollar relative to the Japanese yen would be ________ for Japanese owners of U.S.houses who wish to sell those houses,and ________ for Japanese manufacturers operating factories in the United States that export their products back to Japan.

If one U.S.dollar could be exchanged for one Australian dollar in 1970,and one U.S.dollar can now be exchanged for 0.98 Australian dollars,which of the following is true?

If a country sets a pegged exchange rate that is above the equilibrium exchange rate,how can the country maintain the peg?

Destabilizing speculation refers to

During the Chinese experience with pegging the yuan to the dollar,the yuan was undervalued.As a result,

Which of the following did not help Thailand maintain its peg against the dollar in the 1990s?

As foreign investors began to sell off investments they had made in Thailand,they traded in their baht for dollars.The result of this was

Figure 19-5 -Refer to Figure 19-5.Suppose the Chinese government decides to abandon pegging the yuan to the dollar at a rate which undervalues the yuan.Using the figure above,the equilibrium exchange rate would be and Chinese exports to the United States would in price.

Firms in Thailand that had borrowed dollars while the baht was pegged to the dollar faced interest payments that were than they had planned because the baht had been pegged the equilibrium exchange rate for the baht.

China began pegging its currency,the yuan,to the dollar in 1994.Because the yuan has been at the pegged exchange rate,the Chinese government its reserves of dollars as the government purchased more to maintain the pegged exchange rate.

An increase in the value of the U.S.dollar relative to the Japanese yen would be for Japanese owners of U.S.houses who wish to sell those houses,and for Japanese manufacturers operating factories in the United States that export their products back to Japan.