Consider that, until the Federal Reserve System was created, there was no one single US currency. In colonial days, most of each of the states even had its own money. What benefits might result from a political entity, like a state or a country, having its own currency and what problems might occur?

Consider that, until the Federal Reserve System was created, there was no one single US currency. In colonial days, most of each of the states even had its own money. What benefits might result from a political entity, like a state or a country, having its own currency and what problems might occur?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter6: Government Influence On Exchange Rates

Section: Chapter Questions

Problem 29QA

See similar textbooks

Similar questions

From your course of study, you can see that the U.S. dollar and the Euro are the largest functional currencies in the world. What is another popular functional currency? Where is the currency popular? How many firms worldwide use the currency as their functional currency?
Which do you think is stronger, the U.S. dollar or Euro? Why?
1. How has deregulation of the financial services industry affected the makeup offinancial intermediaries? How do you think intermediaries’ characteristics willchange in the future? 2. How do banking organizations in the United States differ from banking organizationsin other countries? Why are they different? 3. How is money created in a banking system that has fractional reserve requirements(i.e., a fractional reserve system)? 4. Describe the open market operations undertaken by the Federal Reserve. Whattype of trades would the Fed make if it wanted to increase interest rates? 5. How would funds—that is, the money supply—in the United States be affectedif the Federal Reserve increases reserve requirements? Give an example.
Why when the US Federal Reserve raises interest rates, some countries raise interest rates as well? An economic answer is required
Why might a foreign government’s policies be closely monitored by investors in other countries, even if the investors plan no investments in that country? Explain how monetary policy in one country can affect interest rates in other countries.
How and why is the U.S. dollar unique among the world's currencies?
1. describe and explain how the monetary system much of the trading world knew in 1800 evolved into the prevailing system today. 2. discuss the merits of returning to a gold standard. What step might be taken to move in that direction? 3. describe and explain using specific example what a central bank is and what its exchange control authority means.
1. Choosing an exchange rate system One of the oldest debates in economics is whether a currency should have a fixed or floating exchange rate. There is no single solution that fits all economies. The choice of an exchange rate system depends on many factors, including the openness to international trade, maturity of the financial system, inflation, labor market flexibility, and credibility of policy makers. Consider two countries, Opland and Lovenia. Opland has a central bank with a weak reputation. Lovenia has a strong central bank but much higher inflation than its trading partners. Indicate the exchange rate system that would be more beneficial for each country in the following table. Country Pegged (Fixed) Exchange Rates Flexible Exchange Rates Opland Lovenia
Why was the European Monetary System introduced? What are the factors underlying the European Monetary system? Has the European Monetary System been successful?
Some countries have low interest rates and appreciating currencies because they are politically stable. their central banks intervene in the foreign exchange market to support the currency. their inflation rates are low, making the real interest rates high. they have developed financial systems.
The functions of the World Bank evolved in response to (Choose one answer) 1. the creation of the European Recovery Program. 2. the competitive devaluation of currencies. 3. the increase in protectionism. 4. the shift to floating exchange rates.
c) In what three ways do commercial banks make a profit from the monetary system? (d) In Canada, what is the equivalent of the U.S. Federal Reserve? e) Suppose that the United States were to adopt a system of full-reserve banking; thatis, demand deposits would be illegal to lend out, and banks would only charge a nominalfee for safekeeping. Would this help to fix the problems that Mike Maloney layed out? Explain your answer.