Question

1. When does a fixed exchange rate regime become suspect of collapsing?

		when it is overvalued
		when the central bank has inadequate reserves to facilitate capital outflow at the current exchange rate
		when the central bank has inadequate domestic currency to facilitate capital inflow at the current exchange rate
		when unemployment rises to values twice the natural rate

2.Bank runs are still a common problem in the United States

True

False

3.

Contagion of crises can stem from both trade and financial linkages

True

False

4. In lecture we likened speculative attack on central bank reserves to which of the following?

		a bank run
		the sacking of Carthage
		international lender of last resort
		efficient correction of exchange rate

Answer 1

1) when the central bank has inadequate reserves to facilitate capital inflow at the current exchange rate..

(When there is inadequate amount of reserves of foreign currency in the central bank and they can't match the capital inflow then the fixed exchange rate regime become suspect of collapsing)..

2) False..

(In 1993 US government established FDCI, this agency insures bank deposits. Its mission is to maintain stability and public confidence in the U.S financial system. So, the bank run reduced in US)..

3) True..

(Contagion of crises can be caused by any financial factor or any trade linkages over the borders and it's show the interdependency of the global market)...

4) efficient correction of exchange rate..

(There is inefficient correction of exchange rate or fixed exchange rate if there is speculative attack on central bank reserves)...

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