How does a country’s decision to fix its exchange rate to that of another nationshape the conduct of monetary policy?

Q: Explain the exchange rate overshooting with the help of the diagrams that you drew for part a. Why…

A: Exchange rate overshooting is more volatile in short run as there is an excessive movement in…

Q: A country with fixed exchange rate can always raise its policy interest rate to curb down…

A: Exchange rate:- Exchange rates between different currencies indicate how strong one currency is…

Q: Assume that there are substantial capital flows among Country A, Country B and Country C. How will a…

A: Interest rates: The interest rate is the amount charged by a lender to a borrower on top of the…

Q: How can exchange-rate targets lead to a speculativeattack on a currency?

A: The exchange rate targeting is the method by which a central bank intervenes in the market in order…

Q: What are the advantages and disadvantages of currencyboards and dollarization over a monetary policy…

A: A currency board has the advantage than the central bank because it prevents the manipulation in the…

Q: Economists sometimes say that the current exchange rate system is a dirty float system. What does…

A: In the international market, exchange rate is determined under two different systems such that fixed…

Q: What is the main role of the IMF? Group of answer choices To ensure a stable exchange rate regime

A: The International Monetary Fund ( in short IMF) attempts to accomplish supportable development and…

Q: How can an unexpected fall in exchange rates injure the financial health of a nation’s banks?

A: Exchange rate determines the price of the currency of a domestic country when it is exchanged with…

Q: Explain how the flexible exchange rate may be use to correct disequilibrium within an economy.

A: A flexible exchange rate system is a system in which the value of the exchange rate is determined by…

Q: What is it that determines the relationship between spot and forward foreign exchange rates?

A: The spot exchange rate is the rate at which transactions happen currently. The forward exchange rate…

Q: Why is the exchange rate overshooting an important phenomenon? What does it help to explain?

A: With given prices a monetary expansion under flexible rates and perfect capital mobility leads to…

Q: When is exchange-rate targeting likely to be a sensiblestrategy for industrialized countries? When…

A: Under the exchange rate targeting strategy, the central bank intervenes to maintain a particular…

Q: If the Federal Reserve buys dollars in the foreignexchange market but conducts an offsetting…

A: Meaning of Foreign Exchange Rate: Foreign exchange rate refers to the rate at which one unit of…

Q: What is balance of visible items in the balance of payments account called?

A: The balance of payments account of any country contains a number of components like balance of…

Q: How can a surge in exports and decrease in imports cause an increase in aggregate demand and what…

A: Aggregate demand is defined as the total demand of all final commodities and services at a given…

Q: If the central bank were to increase the money supply in a fixed exchange rate regime, what impacts…

A: Fixed exchange-rate system is an economic system in which the currency is kept fixed i.e. it is not…

Q: How is the impact of contractionary monetary policy different in an open economy than in a closed…

A: Contractionary Monetary Policy is refers to decrease in money supply to promote economic growth.…

Q: Given that the country has a floating exchange rate regime, what are the consequences of a policy…

A: As a result of expansionary monetary policy, the LM shifts rightwards and the output and interest…

Q: Consider the case of a fixed exchange rate system as held in Europe before the Euro. All countries…

A: When the country fixes its exchange rate with foreign economy like Germany, then the domestic…

Q: Differentiate between floating exchange rate and exchange rate?

A: An exchange rate regulated by the economic authority with regard to a foreign currency or a bundle…

Q: Give reasons, supported with clear explanations, why countries opt for a floating exchange rate?

A: The exchange rate is the rate at which domestic currency is exchanged with foreign currency in the…

Q: What, then, determines exchange rates in the short run?

A: The exchange rate is determined by the market forces of demand and supply. After a certain stage,…

Q: How is it necessary for a nation with a fixed exchange rate and open financial markets to renounce…

A: The rate about which one currency will be swapped for another is known as the exchange rate. The…

Q: Explain why permanent monetary expansion has a larger effect on output than temporary monetary…

A: In a country if  the currency price of a nation is set by the foreign exchange market based on…

Q: What techniques can a central bank use to stabilize the exchange value of its currency?

A: Monetary policy refers to actions pursued by the central bank of an economy to maximize the…

Q: Explain why a country with fixed exchange rate and open financial markets has to give up its…

A: The theory that depicts that countries might tend to choose among options while making decisions…

Q: shows the expected effect on the value of the USD/EUR exchange rate under such monetary stimulus

A: Monetary Stimulus  A monetary stimulus is a strategy used by central banks to control the nation's…

Q: what does it mean to say that a currency appreciates? Depreciates? Becomes stronger? Becomes weaker

A: Currency is known as the medium of exchange. It is accepted as a form of payment and is famous for…