Chapter A6, Problem 14DQ

Because capital flows were an important element in the currency crises, it has been advocated that emerging markets countries avoid the financial instability by restricting capital mobility. Assess the extent to which you agree with this statement.

Since the collapse of the Bretton Woods agreement in the 1970s the IMF & World Bank have played an important role in stabilizing the financial markets around the world. Are they effective in that role today especially in light of the 2008 financial meltdown - could it happen again?

If a country’s par exchange rate is overvalued, what kind of intervention would that country’s central bank be forced to undertake, and what kind of effect would it have on its international reserves? What must happen if this country’s central bank decides not to intervene anymore?