HW6AKO - ECN 162 International Economic Relations Ina...

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1 ECN 162 International Economic Relations University of California - Davis Ina Simonovska Fall 2009 Assignment 6 Answer Key Due Thursday, December 3, at the beginning of class. This is an optional homework. If your score on this homework is above the lowest score on the five required homeworks, this homework will replace it. Short Answer 1) (29 points) Low-income nations have a dilemma as to whether to fix or float. There are many factors that affect their decisions and how effectively they can manage a financial system. Discuss a few of these issues and the factors that play into the success of a policy. A fixed (pegged) rate allows low-income nations to maintain stable import and export markets, to attract foreign investment, and to offer discipline in their monetary policy actions. Even with fixed rates, there is often pressure to print excessive amounts of money, and often the nation finds that it must purchase or retire its own currency by using foreign reserves or gold, draining its wealth. It may have to restrict capital outflows,
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HW6AKO - ECN 162 International Economic Relations Ina...

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