Chapter 18 International Trade and Finance

| November 9, 2018

30)
If the U.S. government wants to increase the price of the dollar relative to
the euro, it could buy euros with dollars in the foreign exchange market.

31)
Under a flexible exchange rate system, exchange rates are determined by free
markets.

32)
An exchange rate system in which governments try to keep currency values from
fluctuating against one another is a fixed exchange rate system.

33)
A country facing a balance of payments deficit will change the pegged value of
its currency; this is called a revaluation.

34)
The Bretton Woods exchange rate system was replaced by a gold standard.

35)
Suppose that the free market exchange rate for the dollar is 115 yen, but the
U.S. and Japanese governments want it to be 120 yen/dollar. What can the
governments do? Illustrate your answer with a graph.

36)
Explain what is meant by a devaluation of a currency. Under what circumstances
would a country devalue its currency?

37)
Explain what is meant by a revaluation of a currency. Under what circumstances
would a country devalue its currency?

38)
Distinguish between fixed and flexible exchange rate systems.

39)
Explain when a country would face a balance of payments deficit and when it
would face a balance of payments surplus if it was operating under a fixed
exchange rate system.

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