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Question
Consider the following scenario. The Swiss franc is fixed to the U.S. dollar. Market pressures lead to a move away from the peg. Which of the following can be used to restore the previous peg?
a. The Swiss central bank can use a commodity (such as gold) to back the previous peg.
b. The Swiss government can lower domestic prices to offset import pressures.
c. Allow the exchange by the market and in the long run the peg will be restored.
d. The Swiss central bank can purchase or sell U.S. dollars.
Answer
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Related questions
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Q:
Under the flexible exchange rate regime, which of the following variables in the monetary approach becomes zero and is dropped out of the equation?
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According to the monetary approach to the balance of payments, which of the following economic events would help a country to resolve its balance of trade deficit?
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In foreign exchange forecasting, what is a good forecast?
a. When the forecast encourages the firm to buy.
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c. When the forecast is high.
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Q:
Suppose for two currencies the forward premium is 8.5% and the expected premium is 5%. Then the risk premium is:
a. -13.5%
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Q:
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Q:
Information exposure is a type of foreign exchange risk.
Q:
Suppose for two currencies the forward premium is 4% and the expected premium is 8%. Then the risk premium is:
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Q:
A U.S. firm has a 1 million payment due to a Dutch firm in 90 days. The current spot rate is $1.00 per euro, and the 90-day forward rate is $1.11. Ben forecasts that the spot rate in 90 days will be $0.99. Jerry forecasts that the spot rate will be $1.12 in 90 days. The actual spot rate in 90 days turns out to be $1.10. Whose advice, between Ben and Jerry, will save the companys money?
a. Ben
b. Jerry
c. Both Ben and Jerry
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Q:
Suppose that the 1-year forward rate of dollar per Swiss franc is $0.42, the current spot rate ($/SFr) is $0.40, and the expected future spot rate ($/SFr) is $0.45. The forward premium equals to:
a. 7.5%
b. 5%
c. 6.67%
d. 12.5%