Imagine the following scenario: The central bank of Neverland ensures that the exchange rate between the Neverland dollar and the U.S. dollar is fixed. Due to a global financial crisis the demand for U.S. dollars goes up and the demand for Neverland dollars goes down. First, the Neverland's central bank spends U.S. dollar reserves to support the peg but then it runs out of reserves. What is most likely to happen next? OA. the Neverland dollar's exchange rate with respect to U.S. dollar (i.e., the price of Neverland dollars in U.S. dollars) will go up OB. the Neverland dollar's exchange rate with respect to U.S. dollar will go down OC. the Neverland dollar's exchange rate with respect to U.S. dollar will not change D. the stock market index of the Neverland stock exchange will go up

Imagine the following scenario: The central bank of Neverland ensures that the exchange rate between the Neverland dollar and the U.S. dollar is fixed. Due to a global financial crisis the demand for U.S. dollars goes up and the demand for Neverland dollars goes down. First, the Neverland's central bank spends U.S. dollar reserves to support the peg but then it runs out of reserves. What is most likely to happen next? OA. the Neverland dollar's exchange rate with respect to U.S. dollar (i.e., the price of Neverland dollars in U.S. dollars) will go up OB. the Neverland dollar's exchange rate with respect to U.S. dollar will go down OC. the Neverland dollar's exchange rate with respect to U.S. dollar will not change D. the stock market index of the Neverland stock exchange will go up

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Assume that Canada and the United States frequently trade with each other. Under the freely floating exchange rate system, low inflation in the U.S. will place ____ pressure on Canadian dollars (versus U.S. dollars), ____ the amount of Canadian dollars available for sale, and result in ____ inflation in Canada. a) upward; reduce; unchanged b) upward; increase; lower c) downward; reduce; lower d) downward; increase; unchanged e) None of the above
Suppose Greenland wants stuffed toy beavers from Canada. This will mean the demand for the Canadian dollar will Question 45 options: increase; increase and the supply of the Danish krone, the currency used in Greenland, will decrease; decrease increase; decrease decrease; increase
Hi could i know if this is corret? Thanks
To fight the economic slowdown from the Covid-19 pandemic, the Bank of Canada decided to expand the money supply. a) Using diagrams, carefully explain whether or not this policy would have been effective under a fixed value for the exchange rate? b) What is the effect of this policy on the interest rate in the long run? Explain your answer. 三、=、 + v ... Paragraph B I
8. Purchasing-power parity Using data from The Economist's Big Mac Index for 2019, the following table shows the local currency price of a Big Mac in several countries as well as the actual exchange rate between each country and the United States. At the time of the data collection, a Big Mac would have cost you $5.74 in the United States and GBP 3.29 in the United Kingdom. The actual exchange rate between the British pound and the U.S. dollar was $1.25 per pound. The dollar price of a Big Mac purchased in the United Kingdom was, therefore, computed as follows: Dollar price of a Big Mac in the United Kingdom = GBP 3.29 X = $4.11 For the price you paid for a Big Mac in the United States, you could have purchased a Big Mac in the United Kingdom and had some change left over for fries! Complete the final column of the table by computing the dollar price of a Big Mac for the countries where this amount is not given. Note: Round your answers to the nearest cent. Brazil Switzerland United…
George Soros famously bet against the pound in 1992 reportedly earning $1bil in profit. He has since earned (and lost) additional sums by better against other currencies. Explain the concept of Interest Rate Parity (uncovered) and what strategy Soros may have used if his expectations of the future value of a currency differed from the markets.
Using information from problems 3 and 4, suppose that the central bank of Mexico has 200 bln dollars of foreign reserves just before the financial crisis began. If the central bank wants to keep the exchange rate at the level described in problem 4, it can do so for _____ weeks before it runs out of reserves (provided supply and demand curves do not change). Question 3 and 4 attached for your information:)
To fight the economic slowdown from the Covid-19 pandemic, the Bank of Canada decides to expand the money supply. a) Using diagrams, carefully explain whether or not this policy would be effective under a fixed value for the exchange rate? b) What is the effect of this policy on the interest rate in the long run? Explain your answer.
In July 2005, China dropped its decade-long currency peg to the U.S. dollar, and instead repegged to a basket of currencies. China reevaluated the yuan to make the currency effectively 2.1 percent stronger against the U.S. dollar. In mid-2007, China again took steps to let its currency trade more freely against the dollar and to cool its sizzling economy and contain its soaring trade surplus with the United States. In the reversal, however, in mid-2015, China devalued its currency by 4.4 percent against the dollar to stem the deceleration of its economy. Under the new currency system, China has not yet surrendered control of the currency. It has moved away from a fixed exchange rate but not all the way to a flexible or free-floating one. In the long run, the impact of China’s currency manipulation on trade and on the world financial system could be huge. Based on what you have learned from this chapter, what would be the impacts on the world’s economy, if China and other Asian…
At the international Bretton-Woods Conference that designed the International Monetary Fund, participating countries' representatives agreed to peg the value of their currencies to: O U.S. dollar Euro O A basket of U.S. dollar, U.K. pound, French franc and German mark SDR
Q3-11 If a country ties its currency to a specific foreign currency and allows its holdings of that currency to govern the country's money supply, this arrangement is known as a Select one: a. currency board. b. floating exchange rate. c. monetary union. d. Special Drawing Right.
The third box is the same as the first box(increase or decrease). The fourth box is the same as the second box(demand or supply).