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4.1.8 Exchange rates

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Question 5

Suppose a country operates a fixed exchange rate system, pegging its currency (the Peso) to the Euro. Following a severe economic shock, international investors rapidly liquidate their holdings and withdraw capital from the country. To defend the exchange rate peg, what intervention must the country's central bank perform, and if it runs out of reserves and is forced to lower the peg, what is the resulting official downward adjustment called?

A

Sell Euros and buy Pesos; Devaluation

B

Sell Pesos and buy Euros; Depreciation

C

Sell Euros and buy Pesos; Depreciation

D

Sell Pesos and buy Euros; Devaluation

Markscheme

4.1.8 Exchange rates Questions

  1. A Level
  2. /Economics
  3. /4.1.8 Exchange rates

40 exam-style questions on Edexcel A A Level Economics 4.1.8 Exchange rates. Each one has a worked solution and a mark scheme showing where the marks go.

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