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Homework answers / question archive / FINS3616 International Business Finance - Week 2 A

FINS3616 International Business Finance - Week 2 A


FINS3616 International Business Finance - Week 2

A. Conceptual questions

1)What is likely to happen if a central bank suddenly prints a large amount of new money?

  1. How can you quantify currency risk in a floating exchange rate system?
  2. What was the Bretton Woods currency system?
  3. Describe two different currency systems that have been introduced in countries such as Hong Kong and Ecuador to improve the credibility of pegged exchange rate systems.
  4. What is the difference between a target zone and a crawling peg?
  5. What was the EMS?
  6. What did the Maastricht Treaty try to accomplish?


  1. Do you believe its monetary union will be beneficial for Europe?


  1. What factors contributed to the Mexican peso crisis of 1995 and to the Asian crises of 1997
  2. What is the moral hazard of IMF rescue packages for emerging markets which experienced crises?

B. True or False questions

1.    The exchange rate system in which a country allows the value of the currency to be determined by the market forces of supply and demand is known as a pegged exchange rate system.



2.    In the pegged exchange rate system, the currency has limited flexibility and the rate is kept within a fixed band.



3.    Decreases in currency values within a floating rate system are called devaluations.



4.    IMF loans to troubled economies are unlikely to change the behaviors of investors, because investors can assess the risks of moral hazard for themselves.



5.    Currency in circulation should be included in the asset section of a central bank balance sheet.



6.    Official international reserves consist of the major components like gold reserves and foreign exchange reserves



7.    Capital control means the set of regulations pertaining to flows of capital into and out of a country




8.   if a central bank suddenly prints a large amount of new money, it may result in high inflation



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