1. Which one of the following is not consistent with freely floating exchange rate regimes?
A. Exchange rate fluctuations or volatility
B. FInancial Integration and Capital Mobility
C. Independent monetary policy
D. Necessity to hold large foreign exchange reserves
2. Suppose fair value (or equilibrium exchange rate) of Brazilian Real is BRL3 per US dollar. Brazilian central bank adopts a currency peg regime and declares that it intends to maintain the exchange rate at BRL6 per USD. Which one of the following is not consistent with the Brazilian currency peg
A. Brazil is expected to have a current account surplus because at the pegged rate its exporters become more competitive
B. If Brazil can successfully maintain the peg, Brazilian inflation rate is expected to be stable and low
C. Brazil loses competitive advantage because its exchange rate is fixed at a rate other than its fair value
D. If Brazilan government allows perfect capital mobility, it cannot have an independent monetary policy.
E. If Brazilian government wants to pursue an independent monetary policy, it has to restrict capital flows and cannot open its capital account.