Problem
1. In the early 1990s, the foreign exchange reserves of Chile increased dramatically as foreign investment flows into the country increased substantially because of the favorable investment climate and impressive economic growth. At the same time, Chile began intervening in foreign exchange markets to stabilize the exchange value of its peso. How might these two events be related to each other?
2. Explain Mundell's distinction between a "true" currency area and a "pseudo" currency area. Why is this distinction important?