Week 3 Questions and Problems

Chapter 15: Review Questions and Problems 1 & 6

What are the alleged advantages of a fixed over a flexible exchange rate system?

How do advocates of flexible exchange rates respond?

What overall conclusion can be reached on whether flexible or fixed exchange rates are preferred?

Draw a figure showing the fluctuation in the exchange rate over the business cycle without speculation, with stabilizing speculation, and with destabilizing speculation.

Explain the difference between an optimum currency area and a fixed exchange rate system.

What are the main advantages and disadvantages of an optimum currency area?

What are the requirements for a well-functioning optimum currency area?

Indicate the benefits and costs of EMU member countries from the establishment of the euro.

Indicate the difference among fixed exchange rate system, currency board arrangement and dollarization

What is meant by a crawling peg system?

How can such a system overcome the disadvantage of an adjustable peg system?

Chapter 16: Review Questions and Problems 1, 2, 4, & 6

How economic conditions today differ from those prevailing under the gold standard period.

Why the different economic conditions today would make the reestablishment of a smoothly working gold standard impossible.

With respect to a nation with a $100-million quota in the IMF, indicate how the nation was to pay in its quota to the IMF and the amount that the nation could borrow in any one year under the original rules.

How are the rules different today?

Explain the role of the dollar under the Bretton Woods System.

Explain briefly the operation of the present international monetary system.

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