Q:
Under a pegged exchange rate system which of the following measures can be undertaken by a home country in order to devalue its currency back to its original peg?
I. Decrease the growth of the money supply in the home market relative to the country to which the home currency is pegged.
II. Reduce the real level of interest rates.
III. Implement measures to stimulate economic growth at home.
IV. Sell some of the foreign currencies in its reserves in exchange for the domestic currency.
a) II and III only.
b) I and IV only.
c) I, II, and IV only.
d) I and II only.
A:
The correct answer is: a)
By reducing the level of real interest rates at home, foreign and domestic investors will invest in some other nation, where they can get a higher real rate of return. However, this process would involve the selling of the home currency, which will result in its devaluation. Similarly, by increasing income levels in the domestic economy, imports will naturally increase. This process too, will involve the selling of the home currency in order to buy the currency of the nation from where the imports are being bought.

MORE FAQS

  1. Which of the following statements is (are) true with respect to the factors that a manager must take ...

  2. Which of the following are tools that are employed by the Federal Reserve in its efforts to control the money supply?

  3. Which of the following statements is (are) true with respect to setting the proper constraints in managing ...

  4. Which of the following signatures are required on a client’s new account form ...

  5. Which of the following statements is (are) true with respect to the calculation of returns of composites ...

  6. Which of the following statements is(are) true with respect to the factors that a manager must take ...

  7. How are international exchange rates set?

  8. Which TWO statements are TRUE about writing covered calls? I ...

  9. Federal covered securities are subject to which of the following requirements ...

  10. Which statement(s) is/are FALSE about market risk?

  11. What two components are used to calculate risk-adjusted return? I ...

  12. Which of the following strategies is (are) appropriate? I. If a borrower has a fixed rate debt and is ...

  13. Money laundering has become a specific concern in all legitimate financial institutions worldwide ...

  14. In the separate account of a variable annuity, which of the following characteristics apply to annuity ...

  15. How many attempts at each CFA exam is a candidate permitted?

  16. Do financial advisors need to pass the Series 7 exam?

  17. Do financial advisors need to be approved by FINRA?

  18. How does a broker decide which customers are eligible to open a margin account?

  19. Why is the Nasdaq more heavily weighted to tech stocks than other stock exchanges?

RELATED FAQS

  1. Which of the following statements is (are) true with respect to the factors that ...

    The correct answer is: d) (I) is incorrect because if interest rates are expected to rise, banks will generally "increase" ...
  2. Which of the following are tools that are employed by the Federal Reserve in its ...

    I. Moral suasionII. Changing the discount rateIII. Changing the reserve requirementIV. Changing the prime interest rate A. ...
  3. Which of the following statements is (are) true with respect to setting the proper ...

    The correct answer is: d) Choice II is incorrect because the longer the investment horizon, the less emphasis must be placed ...
  4. Which of the following signatures are required on a client’s new account form ... ...

    The correct answer is B. While local practices of a broker-dealer might require the client to sign the form, even when opening ...
  5. Which of the following statements is (are) true with respect to the calculation ...

    The correct answer is: a) (I) is incorrect because results that cover a period of less than a year must "not" be annualized. ...
RELATED TERMS
  1. Currency Board

    A monetary authority that makes decisions about the valuation ...
  2. Currency Peg

    A country or government's exchange-rate policy of pegging the ...
  3. International Currency Exchange Rate

    The rate at which two currencies in the market can be exchanged. ...
  4. Crawling Peg

    A system of exchange rate adjustment in which a currency with ...
  5. Adjustment

    The use of mechanisms by a central bank to influence a home currency's ...
  6. Currency Substitution

    The use of a foreign currency in transactions in place of the ...
Trading Center