In comparison with a floating exchange rate, the effect on the volume of trade i

Question

In comparison with a floating exchange rate, the effect on the volume of trade in a fixed exchange rate is:

A) highest under an indirect peg.

B) lowest for currency unions.

C) highest for currency unions.

D) higher for an indirect peg than a direct peg.

Under the gold standard:

A) the United States set the price of gold at $35 per ounce, and other countries then established their exchange rates against the U.S. dollar (e.g., 1 = $5).

B) Great Britain and the United States set the price of gold at $35 per ounce and 7 per ounce, and then other countries established their exchange rates against either the British pound or the U.S. dollar.

C) all countries pegged the values of their currencies to gold.

D) only gold was used to settle international transactions.

During Britain's brief alignment with the ERM from 1990–1992, the trilemma tells us that monetary policy authority no longer existed in Britain. Why?

A) Britain could print more pounds, but could not increase its gold stock.

B) Britain kept monetary growth rates at zero.

C) The British interest rate equaled the German rate to attain uncovered interest parity.

D) The British could lower unemployment using other means such as fiscal policy

Explanation / Answer

1) The answer is C-) highest for the currency unions.

Because under a fixed exchange rate system, the volum of trade would be effect when the economies are integrated and thus therefore their currency are in unions.

2) The answer is C-) all counties pegged the values of their currencies to gold.

Because under gold standard, the country currency are fixed by to the relative value of an ounce of gold.

3) The answer is C-) The British interest rate equaled the German rate to attain uncovered interest parity.

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