Currency board & central bank - nominal exchange rate target

Related BrainMass Solutions

• Phillips Curve and International Macro

  In 1991, Argentina adopted a currency board that had the responsibility to maintain a fixed exchange rate between the Argentine peso and the U.S. dollar ($1 = 1 Argentine Peso).

• Currency Board

  Therefore the central bank sells foreign assets for domestic currency in the foreign exchange market.

• real vs. nominal

  To maintain fixed exchange rate the central bank will have to prop up the local currency by releasing forex. Thus the foreign exchange reserves will fall. See attached file. 2.

• IS-LM setup

  To maintain the fixed exchange rate the central bank will then have to intervene in the economy and sell foreign currency thus depleting its reserves. IS-LM setup is assessed.

• interest rate parity concepts

  A weaker currency means it takes fewer foreign currency units to buy the domestic currency. (1) the domestic government increases spending 2) the domestic central bank decreases the money supply, 3) the foreign central bank increases.

• Question about Floating exchange rate

  73673 Question about Floating exchange rate A country has a lower inflation rate than all other countries, It has more rapid economic growth. The central bank does not intervene in the foreign exchange market.

• Fixed and Floating Exchange Rate Systems

  Describe any required changes in the balance sheet of the domestic central bank, assuming this bank is committed to the fixed exchange rate.

• Controlling Currency with Central Banks

  If the exchange rate is pegged or managed in any way, the central bank will have to purchase or sell foreign exchange.

• Visit the European Central Bank's (ECB) (website) and the European Commission's (website) to access the Commission's newsletter InfEuro and answer the following questions...

  Do you know of any countries that adopted a currency board with the euro?