Westerlands and Crownlands are two countries that trade with each other and no other countries. Assume that Westerlands' currency is pegged to Crownlands' currency. Meanwhile, due to inflationary pressures, the central bank of Westerlands wishes to decrease the money supply. Which statement is correct - assume that initially (before conducting the monetary policy), Westerlands central bank does not have to intervene in Foreign Exchange Market: To achieve this, Westerlands' central bank can decrease money supply and sell its foreign reserves in foreign exchange markets. Since the exchange rate is fixed, Westerlands' central bank cannot perform this monetary policy.
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- In 2020, the Central Bank of Faunaland increased the money supply growth by 8%, whereas the Central Bank of Gregoria allowed a relatively low money growth of 2%. Faunaland also experienced a relatively high output growth of 4%, whereas Gregoria had relatively robust output growth of 6%. Suppose the Central Bank of Gregoria wants to maintain an exchange rate peg with the currency of Faunaland. What money growth rate would the Central Bank of Gregoria have to choose to keep the value of the currency of Gregoria fixed relative to the currency of Faunaland? For this question, use the simple monetary model, where L is constant. a. 4% b. 6% c. 8% d. 10%8 Westerlands and Crownlands are two countries that trade with each other and no other countries. Assume that Westerlands' currency is pegged to Crownlands' currency. Meanwhile, due to inflationary pressures, the central bank of Westerlands wishes to decrease the money supply. Which statement is correct – assume that initially (before conducting the monetary policy), Westerlands central bank does not have to intervene in Foreign Exchange Market: a. To achieve this, Westerlands' central bank can decrease money supply and sell its foreign reserves in foreign exchange markets. b. Since the exchange rate is fixed, Westerlands' central bank cannot perform this monetary policy. c. Crownlands' central bank can decrease its money supply in order to decrease demand for Westerlands' currency. d. None of the aboveIdentify the primary actor in the European money market and briefly outlineits main role as participant. Identify also the four primary participants in the foreignexchange market.(b) Suppose that the European Central Bank had the view that the euro is overvalued relative to the dollar (i.e., the nominal exchange rate between the dollar and theeuro, E$/AC, is too high). How should the European Central Bank regulate the Europeannominal money supply to achieve a depreciation of the euro relative to the dollar?(c) Suppose that the dollar interest rate is 3% and the euro interest rate is 0.5%per year and that the interest parity condition holds in the dollar/euro foreign exchangemarket.(i) Explain the relationship between the interest rate difference and the expected appreciation of the euro against the dollar. By how many percentage is the euro expectedto appreciate?(ii) Suppose that the expected future exchange rate is Ee$/AC= 2.05. Obtain the currentequilibrium exchange rate that…
- Identify whether each of the following is a debit or a credit in Mexico’s BOP and indicate where the item would be classified.( Specifically indicate the account and the item as credit or debit) a) Mexican firms export $100 million worth of goods. b) Mexican citizens purchase $30 million on travelling overseas. c) A Mexican firm purchases a shoe factory in Bolivia for $20 million. d) Mexico receives $10 million in foreign aid from the United States. e) Mexican citizens deposit $5 million in Citibank account in New York. f) Mexico imports $110 million worth of goods. g) Mexican firms borrow $45 million by issuing bonds in the United States. h) S. firms earn (and repatriate) $5 million in profits from operations in Mexico. h) The Mexican Central bank buys $15 million in U.S. Treasury bills. Suppose that these are all of the entries in Mexico’s BOP table. State if Mexico is net lender or borrower vis- a -vis the rest of the world? Calculate the value of errors and omissions.…Please show all arithmetic leading to your answer. Please select the appropriate multiple choice answer. Consider two countries, Domestic and Foreign, in the short run. In the short run, suppose that Domestic lowers its money supply and Foreign increases its money supply. A. The number of Domestic dollars needed to buy one Foreign dollar will fall. B. The number of Domestic dollars needed to buy one Foreign dollar will rise. C. The number of Domestic dollars needed to buy one Foreign dollar may rise or fall.Consider two identical countries, a and b, in our standard overlapping generations model. In each country, the population of every generation is 200 and each young person wants money balances worth 50 goods. Assume that the money of country "a" is the only currency that currently circulates in the two countries. There are $800 of country "a" money split equally among the initial old of both countries. 1) Find the value of a country "a" dollar and the consumption of the initial old. 2) Suppose country "b" issues its own money, givig £10 to each of the initial old of country "b". To ensure a demand for this currency, country "b" imposes foreign exchange controls. Find the value of a pound and the value of a dollar. Find the consumption of the initial old in country "a" and in country "b". Who has been made better off by this policy switch? This exercise is based on this book: "Modeling Monetary Economies, 3rd Edition". If you can solve this exercice by using the notions of this book it…
- closing case Megahertz Communications worried that Megahertz would not get paid on time, or at all, or that currency fluctuations would reduce the value of payments to Megahertz. Even when Megahertz had a letter of credit from the customer's bank and export insurance documentation, many lenders still saw the risks as too great and declined to lend bridging funds to Megahertz. As a partial solution, Megahertz turned to lending companies that specialize in financing international trade, but many of these companies charged interest rates significantly greater than those charged by banks, thereby squeezing Megahertz's profit margins. Coles hoped these financing problems were temporary. Once Megahertz established a more sustained cash flow from its international operations, and once banks better appreciated the ability of Coles and his team to secure payment from foreign customers, he hoped that they would become more amenable to lending capital to Megahertz at rates that would help to…Q3-13 If a country adopts a currency board arrangement, a result is that the country's money supply _______ be increased by the purchase of domestic assets from the country's citizens by the country's central bank.In this arrangement, the country's money supply _______ be increased by the purchase of foreign assets from the country's citizens by the country's central bank. Select one: a. can / can also b. can / cannot c. cannot / can d. cannot / cannota) Inflation rate in Germany has been rising recently and many policy-makers are concerned. What would be the expected reaction of the ECB to this kind of development? Also, give two reasons why the ECB has not reacted so far. b) Some years ago, US Administration accused China of being a “currency manipulator". What was the reason for these accusations (what was wrong with Chinese currency according to the Americans?) and why would have China wanted to manipulate its currency? If these accusations were correct, with which measure could have China achieved this manipulated currency? c) Instead of using prohibitions as a policy measure, economists prefer using price mechanisms. Is CO2 tax an example of that? Explain.
- Suppose interest rates on 1-year deposits & loans in the U.K. equal 1.5%, and interest rates on 1-year deposits and loans in Mexico are 4.5%. Given these interest rates, a trader at AstraZeneca's U.K. bank would always profit from carry trade strategy as long as the % change in the #MXN/GBP (#Mexican pesos/1 GBP) is -- (choose the best answer from below) Group of answer choices less than 3% greater than 4.5% greater than 3% less than 4.5%Suppose that Germany (country a) and France (country b) do not have foreign currency controls in effect. The total demand for money is always 2,000 goods in Germany and 1,000 goods in France. The fiat money supplies are 100 marks in Germany and 300 francs in France. A. Find the value of each country's money if the exchange rate et is 3. Do the same if et =1. Is one exchange rate more likely than the other? Explain. B. Suppose the exchange rate is 3 and France triples its fiat money stock, whereas Germany prints no new money. How many goods will France gain in seigniorge? What fraction of this seigniorge comes from German citizens?The transmission mechanism for contractionary monetary policy implies that: a. Australian financial assets will become more attractive to the rest of the world, increasing the supply for Australian dollars in the exchange rate market, which leads to a depreciation of its exchange rate that in turn increases net exports. b. Australian financial assets will become more attractive to the rest of the world, increasing the demand for Australian dollars in the exchange rate market, which leads to an appreciation of its exchange rate that in turn decreases net exports. c. Australian financial assets will become more attractive to the rest of the world, decreasing the supply of Australian dollars in the exchange rate market, which leads to an appreciation of its exchange rate that in turn decreases net exports. d. Australian financial assets will become more attractive to the rest of the world, increasing the demand for Australian dollars in the exchange rate market, which…