If a country ties its currency to a specific foreign currency and allows its holdings of...

If a country ties its currency to a specific foreign currency and allows its holdings of that currency to govern the country's money supply, this arrangement is known as a

Select one:

a. currency board.

b. floating exchange rate.

c. monetary union.

d. Special Drawing Right.

Expert Solution

If a country ties its currency to a specific foreign currency and allows its holdings of that currency to govern the country's money supply, this arrangement is known as a

Select one:

a. currency board.

b. floating exchange rate.

c. monetary union.

d. Special Drawing Right.

Answer .Moneytary Union

Monetary union, agreement between two or more states creating a single currency area. A monetary union involves the irrevocable fixation of the exchange rates of the national currencies existing before the formation of a monetary union.From an economic point of view, a monetary union helps reduce transaction costs in an increasingly integrated regional market. It also helps increase price transparency, thus increasing inner-regional competition and market efficiency.

Rahul Sunny answered 2 years ago

Assume the country of Sluban ties its currency (the slu) to the dollar and the exchange...

Assume the country of Sluban ties its currency (the slu) to the dollar and the exchange rate will remain fixed. Sluban has frequent trade with countries in the eurozone and the United States. All traded products can easily be produced by all the countries, and the demand for these products in any country is very sen- sitive to the price because consumers can shift to wherever the products are relatively cheap. Assume that the euro depreciates substantially against the dollar...

please type thankyou If a country allows international trading in its currency and wants to maintain...

please type thankyou If a country allows international trading in its currency and wants to maintain a fixed exchange rate, it must intervene in the currency markets. Explain. What would a government do if it was trying to prevent its currency from depreciating?

Why has Australia reduced its foreign US currency reserve holdings since 2008? Explain your working and...

Why has Australia reduced its foreign US currency reserve holdings since 2008? Explain your working and answer in words. What is the risk of doing this given that monetary policy utilizes forex swaps more than domestic repos?

Suppose that country A pegs its currency to country B’s currency, and A has excessively high...

Suppose that country A pegs its currency to country B’s currency, and A has excessively high inflation. Country B is only likely to help A if: a. both are members of the International Monetary Fund. b. country B has a free trade agreement with country A. c. country B’s output is above its preferred level. d. country B does not trade at all with country A. e. country B’s output is below its preferred level.

Centralized _ __ (two words) allows the international company to reduce transaction costs and foreign currency...

Centralized _________ __________ (two words) allows the international company to reduce transaction costs and foreign currency costs. It may be seen as a way to begin to standardize the financial management function.

One function of the foreign exchange market is to convert the currency of one country into...

One function of the foreign exchange market is to convert the currency of one country into the currency of another. A second function of the foreign exchange market is to provide insurance against foreign exchange risk. The most common approach to exchange rate forecasting is fundamental analysis. This relies on variables such as money supply growth, inflation rates, nominal interest rates, and balance-of-payment positions to predict future changes in exchange rates. Identify a country outside of the U.S. and its...

The following are the foreign currency positions of an FI, expressed in the foreign currency: Currency...

The following are the foreign currency positions of an FI, expressed in the foreign currency: Currency Assets Liabilities FX Bought FX Sold Swiss franc (Sf) Sf 132,600 Sf 54,570 Sf 12,750 Sf 17,850 British pound (£) £ 42,500 £ 21,500 £ 15,500 £ 22,000 Japanese yen (¥) ¥ 8,200,000 ¥ 3,500,000 ¥ 1,600,000 ¥ 9,100,000 The exchange rate of dollars for Sf is 1.02, of dollars for British pound is 1.31, and of dollars for yen is .00953. The following...

Recently, Mexico experienced large-scale trade deficits, depletion of foreign reserve holdings and a major currency devaluation...

Recently, Mexico experienced large-scale trade deficits, depletion of foreign reserve holdings and a major currency devaluation in December 1994, followed by the decision to freely float the peso. These events also brought about a severe recession and higher unemployment in Mexico. Since the devaluation, however, the trade balance has improved. Investigate the Mexican experiences in detail and provide the following in your answer: (a) document the trend in Mexico’s key economic indicators, such as the balance of payments, the exchange...

If an emerging country has an extensive amount of foreign currency denominated debt; what are the...

If an emerging country has an extensive amount of foreign currency denominated debt; what are the options to deal with it, especially in the economic turmoil conditions?

1. The following are the foreign currency positions of an FI, expressed in the foreign currency:...

1. The following are the foreign currency positions of an FI, expressed in the foreign currency: Currency Assets Liabilities Macanese Pataca 74,394 23,758 British Pound 730,255 1,813,666 Danish Krone 1,200,532 1,730,189 The beginning spot exchange rates are: $1 = 8.08 patacas $1 = 0.77 pound sterling $1 = 6.46 krones The ending spot exchange rates are: $1 = 7.65 patacas $1 = 0.63 pound sterling $1 = 7.16 krones e. What is the $ gain or loss from the British currency? f. What is the $ gain or loss from the Danish currency?...

Question