1. In years past, Belgium and South Africa operated a two-tier, or dual, exchange rate market. The two-tier market was abolished in March 1990 in Belgium and in March 1995 in South Africa. Import and export transactions were handled on the official market, and capital transactions were handled on the financial market, where the "financial" exchange rate was freely floating. Discuss why such a system may prevent speculators from profiting when betting on a devaluation.
2. The kuna is the currency of Croatia. Find the Web site of Croatia's central bank and determine the exchange rate system Croatia runs. Suppose the kuna weakens substantially relative to the euro. Which action can the central bank take to keep its currency system functioning properly?
3. Type "People's Bank of China" into your favorite search engine and go to the English versions of the Web site. Under "Statistics," find the Balance Sheet of the Monetary Authority. Calculate the growth rate of base money and the growth rate of international assets for the past few years. How much foreign exchange intervention is China doing? Are they sterilizing it?