T6 Alternative Foreign Exchange Regimes

Question 1

Fixed ER

Answer 1

value of a currency pegged relative to the value of one other currency

Question 2

Floating ER

Answer 2

value of a currency allowed to fluctuate against other currencies

Question 3

Managed float (dirty float)

Answer 3

buying and selling currencies to influence ER

Question 4

Gold standard

Answer 4

fixed ER, no control over monetary policy, influenced heavily by production of gold

Question 5

Bretton woods system

Answer 5

IMF, after WW2 fixed ER based on convertibility of USD into gold, USD as reserves currency: largest economic power

Question 6

Question 7

Policy Trilemma

Answer 7

can have 2 of 3:
Fixed ER
Free Capital Mobility
Independent monetary policy

Question 8

Question 9

CA deficit implications

Answer 9

Suggests UK businesses may be losing ability ro compete because pound is too strong. UK deficit means surpluses in other countries - large increases in their int reserve holdings - world inflation

Question 10

Contractionary monetary policy vs expansionary

Answer 10

Contractionary - will raise domestic IR & strengthen currency
Expansionary - lower IR rate & weaken currency

Question 11