ECON 3580 Lecture Notes - Lecture 15: Floating Exchange Rate, Money Supply

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magentasardine691

17 Jul 2018

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Central bank intervention and the money supply: to study the effects of central bank intervention in the foreign exchange markets, first construct a simplified balance sheet for the central bank. This records the assets and liabilities of a central bank. Balance sheets use double-entry bookkeeping: each transaction enters the balance sheet twice. Loans to domestic banks (called discount loans in us: liabilities. Currency in circulation (previously central banks had to give up gold when citizens brought currency to exchange: assets = liabilities + net worth. If their deposits at the central bank increase, banks are typically able to use these additional funds to lend to customers, so that the amount of money in circulation increases. Assets, liabilities, and the money supply: a purchase of any asset by the central bank will be paid for with currency or a check written from the central bank, Both of which are denominated in domestic currency, and.

Related Questions

Decide whether the U.S dollar would appreciate or depreciate compared to the Mexican peso in each scenario. Assume flexible exchange rates.

1. American tourists head to Mexican beaches for the spring.

2. Mexico's money supply drops sharply.

3. Taxes on corporations in the U.S are cut. They are now lower for business investment than Mexico.

4. Drug violence discourages Americans from traveling to Mexico.

23. The basic type of intervention by central banks under the managed floating exchange rate system is to:

A. The central bank or government simply changes the peg for exchange rates.

B. Buy and sell currencies to influence supply and demand.

C. Renegotiate the rate at which foreign currencies can be converted into gold.

D. Make pronouncements but then do nothing and let the market set the exchange rate.

indigobear203

In an open economy with global capital markets and mobile capital:

A) a country has control over both its domestic money supply and exchange rate.

B) a country has control of either its domestic money supply or exchange, but not both.

C) a country only has control over its domestic money supply.

D) a country only has control over its exchange rate.

An overvalued fixed exchange rate can be maintained only as long as:

A) the country's central bank reserves are available to support currency intervention in the foreign exchange market.

B) the country's central bank can increase the domestic money supply.

C) the country's government increases debt financing.

D) none of the above.

The decrease in demand faced by McDonald's during 2001-2002 can be attributed to:

A) decrease in consumer preference for high-fat content food.

B) increase in lawsuits.

C) increase in competitive pressures.

D) all of the above.

champagnecheetah11

Which of the following most accurately describe the operation of the Bretton Woods system of adjustable pegged exchange rates? Check all that apply.

Countries can always reach their domestic stabilization objectives by devaluing their currencies.

A semi-fixed exchange rate system ties currencies to each other to provide stable exchange rates for commercial and financial transactions.

Countries can devalue or revalue its currency so as to restore payments balance.

Adjustable pegged rates enable estimates of the equilibrium rate to which a currency should be re-pegged.

Why do nations use a crawling peg exchange rate system?

To make small but frequent exchange rate adjustments promoting payments balance

To enable short-term volatility and longer-term swings in exchange rates that overshoot values justified by fundamental conditions

To make significant exchange rate adjustments promoting payments balance

To implement par value changes in a small number of large steps

Use the following categorization table to indicate the case for and the case against a system of floating exchange rates.

	For or	Against
It enables continuous adjustments of payments balances.
It reduces the need for international reserves.
It leads to disorderly exchange markets.
It may be inflationary.

byzantiumwolf933

ECON 3580 Lecture Notes - Lecture 15: Floating Exchange Rate, Money Supply

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