30. The frequency of govermment interventions in the foreign eschange markets (i

Question

30. The frequency of govermment interventions in the foreign eschange markets (i.e. China) explains why the Because of this, system is often referred to as a managed-float sysiem or atm) some have argued that China A) clean float system, is superior at currency management , 13) statutory float system, spends too much money on currency intervention C) dirty float system, is a currency manipulator D) unwieldy float system, should not participate in the international monetary sysiem 40. The current dollar/duby exchange rate is $1-200d. You wish to make a 10ood investment in dubyland. How many dollars will this be? A) $1x 200d/1000d B) S1x 2200d/100d C) S1x 1000d/200d D) $.9 x 200d/1000d Based on the above answer, if your investment yields a l0% return in dulyland, how many dollars will you get back when you covert into dollars, assuming the exchange rate does not ehange? 41. A) $.9 x 200d/1100d B) $1 x 220d/100od C) $I x 1000d/220d D) S1 x 1100d/200d 42. Based on your answer above, how many dollars will you get back if the duby strengthen s by50%just before you exchange dubies for dollars? A) $.9 x 200d/2200d B) SIx1100d/100d C) $1x 2000d/100d D). S1 x 100d/1000d 43. A exchange occurs when two parties agree to exchange currency and execute the deal at some specific date in the future. A) reverse B) hedge C) forward D) spot According to our lecture, when a positive change in a country's money supply is greater than the chang in its output, A) economic growth B) unemployment C) inflation D) per capita savings 44. is fueled leads to economic contraction 45. The Paradox of Thrift refers to a situation in which hence the paradox. higher unemployment, and A) too much savings, falling savings rates B) investment in excess of savings (I> S), higher savings rates C) D) inefficient monetary policy, falling savings rates Excessive consumption, higher savings rates

Explanation / Answer

39. dirty float system ,is a currency manipulator. (C)

40. 1$* 1000d/200d = 5$ (C)

This is because if 1$ = 200d then by unitary method

1d=1/200$

1000d= 1 / 200 *1000 = 5$

41. 1$ * 1100d/200d (D)

This is because a 10% return on 1000d will be 100d, thus the total amount will equal to the principal amount + return i.e. 1000+100 =1100d

The exchange rate remaining constant at 1d=1/200 $,

the total dollars = 1100d/200d * 1$

42. 1$* 1100d/100d

When duby appreciated by 50%, it now become 50% more expensive in terms of dollars

hence the previous exchange rate i.e. 1$=200d falls to 1$=100d (50% of 200 =100 therefore there is a 100d fall in exchange rate as d becomes costlier in terms of dollar)

Then we can apply the formula of the new exchange rate where 1d=1/100$

1100d = 1100/100*1$

43. Forwad

44. Inflation

When the money supply is freater than the output, people have more money in thoer hands and therefore demand more products. However the supply is constant as output does not change. The demand becomes greater than the supply and therefore the general price levels rise leading to inflation.

45. too much savings, fall in saving rates

When individuals start saving more, the total demand falls. As a result there is economic contraction because the output is reduced to prevent overproduction. Thus unemployment takes place and income falls . The economy becomes weak and people eventually start saving less due to lower incomes.

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