International
Financial System
Essays (length
varies, 10 points)
Assume that a fixed exchange rate is
overvalued. Describe the situation of a speculative crisis against this
currency. What can the central bank do to defend the currency? Why might the
alternative of devaluation be preferable?
Explain and demonstrate graphically the
situation of an overvalued exchange rate in a fixed exchange rate system. What
alternative policies are available to eliminate the overvaluation of the
exchange rate?
Explain an additional disadvantage for a
country undergoing dollarization compared to a currency board or other
exchange-rate targeting regimes.
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