(34) Under Britis England was required to buy international reserves. the Exchan

Question

(34) Under Britis England was required to buy international reserves. the Exchange Rate Mechanism of the European Monetary System, when the depreciated below its lower limit against the German mark, the Bank of h pound thereby and sell A) marks; pounds; gaining B) marks; pounds; losing C) pounds; marks; losing D) pounds; marks; gaining (35) Which of the following is NOT an advantage to exchange-rate targeting? A) It provides a strong nominal anchor to keep inflation under control. B) It provides an automatic rule for policy to help avoid the time-inconsistency problem C) It is simple and clear so that the public can easily understand it D) It increases the accountability of policymakers.

Explanation / Answer

34. The correct answer is: C)pounds, marks, losing

Reason: This goes by the way the exchange rate under the European system works that when the British pound depreciate below the German mark, the Bank of England respond by buying pounds and selling marks thereby losing international reserves and contrary to it the German Bank buys marks and sells pounds gaining international reserves.

35. The correct answer is: B)

Reason: option a, C and d are the clear advantages of exchange rate targeting. Thus, b) must be the required option here.

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