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Currency Crisis Analysis and Exchange Rates

This document contains an economics problem set with questions about currency crises and exchange rate regimes. It asks the student to: 1) Summarize trends in currency crises over the 20th century from a provided chart and explain why currency crises often lead to economic contraction. 2) Explain the differences between a floating exchange rate system, managed float, and fixed exchange rate regime. It also asks about advantages and disadvantages of each. 3) Discuss conditions that should be considered when choosing a currency to peg your own currency to in a fixed exchange rate regime, and advantages and disadvantages of fixed rate regimes. 4) Explain when a fixed exchange rate regime becomes unsustainable, how

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5 views2 pages

Currency Crisis Analysis and Exchange Rates

This document contains an economics problem set with questions about currency crises and exchange rate regimes. It asks the student to: 1) Summarize trends in currency crises over the 20th century from a provided chart and explain why currency crises often lead to economic contraction. 2) Explain the differences between a floating exchange rate system, managed float, and fixed exchange rate regime. It also asks about advantages and disadvantages of each. 3) Discuss conditions that should be considered when choosing a currency to peg your own currency to in a fixed exchange rate regime, and advantages and disadvantages of fixed rate regimes. 4) Explain when a fixed exchange rate regime becomes unsustainable, how

Uploaded by

thomas
Copyright
© All Rights Reserved
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UC3M

INTERNATIONAL
ECONOMICS
PROBLEM SETS 9

Currency Crisis (Part A)

1. i) Analyse the chart in this page, and provide an explanation about the dynamics
of the number of currency crisis since the beginning of the 20th century (i.e.
make a summary of the explanation given in class, and you are more than welcome,
if you want to, to further develop the arguments presented in this session). ii)
Explain why a currency crisis is usually followed by a severe economic
contraction?

2. i) In what consists a Floating Exchange Rate System? ii) Which are the advan-
tages and the disadvantages of a floating exchange rate system. iii) Which are
the differences between a float and a manage float?

3. i) What is a Fixed Exchange Rate Regime (FERR)? ii)Imagine you have to choose
a currency to which peg your currency in order to start a FERR. Which conditions
should this currency have? (i.e. which criteria should follow the choice of
anchor?)
iii) Which are the advantages and disadvantages of a FERR?

4. i) Fixed exchange rates require constant intervention from the Central Bank to
keep the price fixed. When is a fixed exchange rate regime (FERR)
unsustainable?
ii) When a fixed exchange rate regime is attacked by speculators? iii) A country
with a big amount of foreign reserves will never be forced to abandon a Peg (i.e.
to abandon a FERR). Is this statement true or false?
1

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