(31) in the expected future domestic exchange rate causes the demand for domesti

Question

(31) in the expected future domestic exchange rate causes the demand for domestic assets to shift to the right and the domestic currency to else held constant. A) A decrease; appreciate B) A decrease; depreciate C) An increase; appreciate D) An increase; depreciate (32) Under a fixed exchange rate regime, if the domestic currency is initially undervalued, that is, above par, the central bank must intervene to sell the currency by purchasing as _ assets. A) foreign; foreign B) foreign; domestic C) domestic; foreign D) domestic; domestic (33) Under the current managed float exchange rate regime, countries with balance of payments makes foreign goods more expensive for domestic consumers and can stimulate inflation. frequently do not want to see their currencies because it A) surpluses; depreciate B) deficits; depreciate C) surpluses; appreciate D) deficits; appreciate

Explanation / Answer

31. An increase in the expected future domestic exchange rate causes the demand for domestic assets to shift to the right and the domestic currency to appreciate everything else held constant.

The correct option is c

32. Under a fixed exchange rate regime, if the domestic currency is initially undervalued, that is, above par, the central bank must intervene to sell the __domestic______ currency by purchasing ____foreign____ assets.

Hence the correct option is c

33. Under the current managed float exchange rate regime, countries with balance of payments ____ deficits____ frequently do not want to see their currencies ____ depreciate____ because it makes foreign goods more expensive for domestic consumers and can stimulate inflation.

Hence the correct option is b

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