Financial Markets and Institutions (2-downloads)

d. A Japanese’s purchase of California oranges

e. $50 million of foreign aid to Honduras

f. A loan by an American bank to Mexico

g. An American bank’s borrowing of Eurodollars

4. Why does a balance-of-payments deficit for the

United States have a different effect on its interna-

tional reserves than a balance-of-payments deficit for

the Netherlands?

5. Under fixed exchange rates, if Britain becomes more

productive relative to the United States, what for-

eign exchange intervention is necessary to maintain

the fixed exchange rate between dollars and pounds?

Which country undertakes this intervention?

6. What is the exchange rate between dollars and Swiss

francs if one dollar is convertible into 1/20 ounce 

of gold and one Swiss franc is convertible into 

1/40 ounce of gold?

7. If a country’s par exchange rate was undervalued

during the Bretton Woods fixed exchange rate

regime, what kind of intervention would that coun-

try’s central bank be forced to undertake, and what

effect would it have on its international reserves and

the money supply?