1. What will happen to a country that fixes the price of foreign exchange below equilibrium?
2. What factors will shift the supply and demand for currency?
3. What are the three categories of transactions in the balance of payments? Give an example of each.
4. What will happen to the supply of dollars, the demand for dollars, and the equilibrium exchange rate of the dollar in each of the following cases?
a. Americans buy more European goods.
b. Europeans invest in U.S. stock market.
c. European tourists flock to United States.
d. Europeans buy U.S. government bonds.
e. American tourists flock to Europe.
5. Economists sometimes say that the current exchange rate system is a dirty float system. What does this mean?
6. What are the main arguments presented against flexible exchange rates?