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If the Federal Reserve buys dollars in the foreign exchange market but conducts an offsetting open market operation to sterilize the intervention, what will be the impact on international reserves, the money supply, and the exchange rate?

What are some of the disadvantages of China鈥檚 pegging the yuan to the dollar?

If a country鈥檚 par exchange rate was undervalued during the Bretton Woods fixed exchange rate regime, what kind of intervention would that country鈥檚 central bank be forced to undertake, and what effect would the intervention have on the country鈥檚 international reserves and money supply?

鈥淚f a country wants to keep its exchange rate from changing, it must give up some control over its monetary policy.鈥� Is this statement true, false, or uncertain? Explain your answer.

Why did the exchange-rate peg lead to difficulties for the countries in the ERM after the German reunification?

How can exchange-rate targets lead to a speculative attack on a currency?

If the Federal Reserve buys dollars in the foreign exchange market but does not sterilize the intervention, what will be the impact on international reserves, the money supply, and the exchange rate?

For each of the following, identify in which part of the balance-of-payments account the transaction is recorded (current account, capital account, or net change in international reserves) and whether it is a receipt or a payment.

a. A British subject鈥檚 purchase of a share of Johnson & Johnson stock

b. An American citizen鈥檚 purchase of an airline ticket from Air France

c. The Swiss government鈥檚 purchase of U.S. Treasury bills

d. A Japanese citizen鈥檚 purchase of California oranges

e. $50 million of foreign aid to Honduras

f. A loan from an American bank to Mexico

g. An American bank鈥檚 borrowing of euro dollars

Suppose that you travel to Cali (Colombia), where the exchange rate is$1USDto2,900$Colombian pesos. As you enter a McDonald鈥檚 restaurant, you realize you need $17,400$Colombian pesos to buy a Big Mac. Assuming a Big Mac sells for $\$5$in the United States, would you say that the Colombian peso is over- or undervalued in terms of PPP?

What would be the effect of a devaluation on a country鈥檚 imports and exports? If a country imports most of the goods included in the basket of goods and services used to calculate the CPI, what do you think the effect will be on this country鈥檚 inflation rate?