Chapter 9.5, Problem 4QS5

Summary Introduction

To Determine:

The reason why governments sometimes engage in currency restrictions.

Introduction:

In the foreign exchange market, a convertible (hard) currency is traded whose price is determined by the forces of supply and demand. Countries which have adequate reserves of foreign currencies and have strong financial position allow full convertibility. If people will sell their own currency for that of another, such countries have no reason to fear. Still free convertibility of the currency is not permitted by some newly industrialized and developing countries.