Question 1

A currency pegged at a value above the market equilibrium exchange rate is

Accepted Answer

When a currency is pegged at a value above the market equilibrium exchange rate, it means that the pegged value is artificially high, and the currency is overvalued. This implies that the currency is stronger than it should be, which can lead to lower exports and higher imports, resulting in a trade imbalance. Moreover, an overvalued currency can make imports cheaper and lead to higher inflation, making the economy less competitive in the global market.

Question 2

Figure 19-8 
-Refer to Figure 19-8.The equilibrium exchange rate is at A,$1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.At the pegged exchange rate

Accepted Answer

At the pegged exchange rate of $1.00/euro, the quantity of euros demanded would increase to 2.2 billion, while the quantity of euros supplied would decrease to 1.7 billion. Therefore, there is a shortage of euros equal to 500 million (2.2 billion - 1.7 billion = 500 million).

Question 3

Figure 19-7 
-Refer to Figure 19-7.If the Indian government pegs its currency to the dollar at a value below $.02/rupee,we would say the currency is

Accepted Answer

If the Indian government pegs its currency to the dollar at a value below $.02/rupee, it means that the Indian currency is undervalued. This is because the relative value of the Indian currency is less than its true value compared to the US dollar.

Question 4

If a country's currency ________ the dollar,its exchange rate is fixed.

Accepted Answer

When a country's currency is pegged to the dollar, it means that the exchange rate between the two currencies is fixed at a certain rate. This is done by the country's central bank buying and selling its own currency in foreign exchange markets to keep the exchange rate at the desired level. Therefore, option C is the correct choice.

Question 5

The Bulgarian currency,the lev,is pegged to the euro at a rate of 1.96 leva (leva is the plural of lev)to the euro.At the pegged exchange rate,how many euros would be exchanged for one lev?

Accepted Answer

To find how many euros you get for one lev, divide 1 by the pegged rate of 1.96 leva per euro, which equals approximately 0.51 euros.

Question 6

Compared to a situation in which there is no change in the value of the dollar relative to the peso,in which of the following situations would you be worse off?

Accepted Answer

If you borrow $10,000 and earn income in pesos, and the dollar appreciates against the peso, you will need more pesos to pay back the same amount in dollars, making you worse off.

Question 7

Figure 19-7 
-Refer to Figure 19-7.Which of the following is true?

Accepted Answer

The answer of Figure 19-7 
-Refer to Figure 19-7.Which of...

Question 8

Figure 19-8 -Refer to Figure 19-8.The equilibrium exchange rate is originally at A,$1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D₂.If the European Central Bank abandons the peg,the equilibrium exchange rate would be

Accepted Answer

If the European Central Bank pegs its currency at $1.00/euro, the equilibrium exchange rate would be at point A on the graph, where supply and demand intersect at $1.25/euro. However, if speculators expect the value of the euro to rise, the demand for euro will shift to the right, to D₂, causing an increase in the euro's value. Therefore, if the European Central Bank abandons the peg, the equilibrium exchange rate will be at the intersection of the supply and new demand curves, which is at point C, $1.50/euro.

Question 9

Figure 19-7 
-Refer to Figure 19-7.If the Indian government pegs its currency to the dollar at a value above $.02/rupee,we would say the currency is

Accepted Answer

If the Indian government pegs its currency to the dollar at a value above $.02/rupee, then the Indian rupee will be overvalued with respect to the US dollar. This means that the Indian rupee will be relatively more expensive compared to the US dollar than what the market would have determined based on supply and demand. Therefore, the best choice is B) overvalued.

Question 10

The year in which euro coins and paper currency were introduced and participating "euro zone" countries withdrew old domestic currencies from circulation was

Accepted Answer

Euro coins and paper currency were introduced in 2002, with participating "euro zone" countries withdrawing old domestic currencies from circulation. The year 1999 marked the introduction of the euro as a virtual currency, and the year 2007 was not a significant year in the timeline of the euro currency. 1995 was also not a relevant year in this context.

Question 11

The Danish currency,the krone,is pegged to the euro at a rate of 7.46 kroner (kroner is the plural of krone)to the euro.At the pegged exchange rate,how many euros would be exchanged for one krone?

Accepted Answer

The answer of The Danish currency,the krone,is pegged to the...

Question 12

By the end of 2017,________ members of the European Union were using the euro as their currency.

Accepted Answer

As of the end of 2017, 19 out of 28 member states of the European Union were using the euro as their currency. The remaining 9 countries have their own currencies.

Question 13

During the Chinese experience with pegging the yuan to the dollar,the yuan was ________.As a result,there was a ________ of dollars on the market,and the Chinese government had to purchase dollars to maintain the peg.

Accepted Answer

When a currency is undervalued, it means it is priced lower than its actual value, which was the case with the yuan during its peg to the dollar. This led to a surplus of dollars on the market, as they were being exchanged for undervalued yuan. To maintain the peg, the Chinese government had to purchase these excess dollars, leading to a buildup of foreign currency reserves.

Question 14

Fluctuating exchange rates can alter a multinational firm's profits and losses.The U.S.automobile manufacturer Tesla produces vehicles in the United States and sells them in Norway.(Norway is Tesla's largest overseas market.)If the dollar appreciates against the Norwegian krone,then Tesla's revenues from these operations should ________ and its profits from these operations should ________.

Accepted Answer

When the dollar appreciates against the Norwegian krone, it means that each dollar can buy more krones. Therefore, when Tesla converts its revenues from krones back to dollars, it will receive fewer dollars for the same amount of krones, leading to a fall in revenues. Additionally, the cost of Tesla's cars in krones would increase, potentially reducing sales in Norway, which could also lead to a fall in profits.

Question 15

When foreign investors in Thailand began to realize that Thailand could not maintain its peg to the dollar indefinitely,they began to ________ in Thailand and exchange ________.This change in investment by foreigners is termed capital flight.

Accepted Answer

Foreign investors realized that Thailand could not maintain its peg to the dollar indefinitely, which led to a loss of confidence in the Thai economy. As a result, foreign investors sold off their investments in Thailand and exchanged the baht they received for dollars. This phenomenon is known as capital flight.

Question 16

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

Accepted Answer

If a country sets a pegged exchange rate below the equilibrium exchange rate, there will be excess supply of domestic currency in the foreign exchange market, i.e. there will be excess demand for foreign currency. To maintain the peg, the central bank of the country needs to sell the excess domestic currency in exchange for foreign currency at the pegged exchange rate. This will reduce the excess supply of domestic currency and increase the foreign reserves of the central bank, which can be used to defend the peg in the future. Therefore, option B is the correct choice. Option A is incorrect because purchasing surplus domestic currency at the pegged rate will increase the excess supply and put further pressure on the peg. Option C is incorrect because purchasing surplus domestic currency at the equilibrium rate will increase the excess supply and put further pressure on the peg. Option D is incorrect because decreasing the pegged exchange rate will exacerbate the excess supply and lead to a larger deviation from the equilibrium rate.

Question 17

Figure 19-7 
-Refer to Figure 19-7.At what level should the Indian government peg its currency to the dollar to make U.S.imports cheaper in India?

Accepted Answer

The answer of Figure 19-7 
-Refer to Figure 19-7.At what...

Question 18

Pegging a country's exchange rate to the dollar can be advantageous in all of the following situations except

Accepted Answer

If a country pegs its exchange rate to the dollar, it limits its ability to conduct independent monetary policy as it must essentially follow the monetary policy of the United States. This may not be advantageous if the country has its own economic goals and priorities that are different from those of the US. A, B, and D can all be advantageous in certain situations as pegging to the dollar can increase confidence in the country's currency and facilitate trade with the US.

Question 19

Figure 19-8 -Refer to Figure 19-8.The equilibrium exchange rate is at A,$1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D₂.After the shift

Accepted Answer

After the shift in the demand curve, the new equilibrium exchange rate is shown at point B, which is above the pegged rate of $1.00/euro. As a result, there is an increase in the quantity demanded of euros, creating a shortage equivalent to the horizontal distance between the original demand curve and the new demand curve at the equilibrium exchange rate, which is equal to 800 million euros ($1.25 - $1.00 = $0.25, and $0.25 x 3.2 billion = 800 million). Therefore, choice C is the correct answer.

Question 20

You decide to work in London for the next 5 years,accumulate some savings,then move back to the United States and convert your savings from British pounds to dollars.At the time of your move,economists predict that consumers in the United States have lost their affinity for British products,and expect that this declining preference for British products will continue for the next decade.How should this influence your decision to work and save in London?

Accepted Answer

The declining U.S. preference for British goods means less demand for pounds to buy those goods, which should decrease the value of the pound relative to the dollar. This would decrease the value of savings when converted from pounds to dollars, making this scenario discouraging for someone planning to save in pounds and convert to dollars later.

Quiz 19: The International Financial System

A currency pegged at a value above the market equilibrium exchange rate is

Figure 19-8 -Refer to Figure 19-8.The equilibrium exchange rate is at A,$1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.At the pegged exchange rate

Figure 19-7 -Refer to Figure 19-7.If the Indian government pegs its currency to the dollar at a value below $.02/rupee,we would say the currency is

If a country's currency ________ the dollar,its exchange rate is fixed.

The Bulgarian currency,the lev,is pegged to the euro at a rate of 1.96 leva (leva is the plural of lev) to the euro.At the pegged exchange rate,how many euros would be exchanged for one lev?

Compared to a situation in which there is no change in the value of the dollar relative to the peso,in which of the following situations would you be worse off?

Figure 19-7 -Refer to Figure 19-7.Which of the following is true?

Figure 19-7 -Refer to Figure 19-7.If the Indian government pegs its currency to the dollar at a value above $.02/rupee,we would say the currency is

The year in which euro coins and paper currency were introduced and participating "euro zone" countries withdrew old domestic currencies from circulation was

The Danish currency,the krone,is pegged to the euro at a rate of 7.46 kroner (kroner is the plural of krone) to the euro.At the pegged exchange rate,how many euros would be exchanged for one krone?

By the end of 2017,________ members of the European Union were using the euro as their currency.

During the Chinese experience with pegging the yuan to the dollar,the yuan was .As a result,there was a of dollars on the market,and the Chinese government had to purchase dollars to maintain the peg.

When foreign investors in Thailand began to realize that Thailand could not maintain its peg to the dollar indefinitely,they began to in Thailand and exchange .This change in investment by foreigners is termed capital flight.

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

Figure 19-7 -Refer to Figure 19-7.At what level should the Indian government peg its currency to the dollar to make U.S.imports cheaper in India?

Pegging a country's exchange rate to the dollar can be advantageous in all of the following situations except

Figure 19-8 -Refer to Figure 19-8.The equilibrium exchange rate is at A,$1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D₂.After the shift

Quiz 19: The International Financial System

A currency pegged at a value above the market equilibrium exchange rate is

Figure 19-8 -Refer to Figure 19-8.The equilibrium exchange rate is at A,$1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.At the pegged exchange rate

Figure 19-7 -Refer to Figure 19-7.If the Indian government pegs its currency to the dollar at a value below $.02/rupee,we would say the currency is

If a country's currency ________ the dollar,its exchange rate is fixed.

The Bulgarian currency,the lev,is pegged to the euro at a rate of 1.96 leva (leva is the plural of lev) to the euro.At the pegged exchange rate,how many euros would be exchanged for one lev?

Compared to a situation in which there is no change in the value of the dollar relative to the peso,in which of the following situations would you be worse off?

Figure 19-7 -Refer to Figure 19-7.Which of the following is true?

Figure 19-7 -Refer to Figure 19-7.If the Indian government pegs its currency to the dollar at a value above $.02/rupee,we would say the currency is

The year in which euro coins and paper currency were introduced and participating "euro zone" countries withdrew old domestic currencies from circulation was

The Danish currency,the krone,is pegged to the euro at a rate of 7.46 kroner (kroner is the plural of krone) to the euro.At the pegged exchange rate,how many euros would be exchanged for one krone?

By the end of 2017,________ members of the European Union were using the euro as their currency.

During the Chinese experience with pegging the yuan to the dollar,the yuan was ________.As a result,there was a ________ of dollars on the market,and the Chinese government had to purchase dollars to maintain the peg.

When foreign investors in Thailand began to realize that Thailand could not maintain its peg to the dollar indefinitely,they began to ________ in Thailand and exchange ________.This change in investment by foreigners is termed capital flight.

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

Figure 19-7 -Refer to Figure 19-7.At what level should the Indian government peg its currency to the dollar to make U.S.imports cheaper in India?

Pegging a country's exchange rate to the dollar can be advantageous in all of the following situations except

Figure 19-8 -Refer to Figure 19-8.The equilibrium exchange rate is at A,$1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D2.After the shift

During the Chinese experience with pegging the yuan to the dollar,the yuan was .As a result,there was a of dollars on the market,and the Chinese government had to purchase dollars to maintain the peg.

When foreign investors in Thailand began to realize that Thailand could not maintain its peg to the dollar indefinitely,they began to in Thailand and exchange .This change in investment by foreigners is termed capital flight.

Figure 19-8 -Refer to Figure 19-8.The equilibrium exchange rate is at A,$1.25/euro.Suppose the European Central Bank pegs its currency at $1.00/euro.Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D₂.After the shift