Solutions 3 - FIN 330 Homework 3: International Monetary...

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1 FIN 330 Homework 3: International Monetary Systems 1) Is a floating-rate system more inflationary than a fixed-rate system? Explain. A NSWER . To the extent that floating exchange rates allow monetary authorities to pursue more inflationary policies, then a floating rate system can be more inflationary. However, this is an indirect effect, the direct cause of inflation being rapid money expansion. 2) Will coordination of economic policies make exchange rates more or less stable? Explain. A NSWER . Coordination of economic policies will make exchange rates more stable, since the relative attractiveness of the various currencies is less likely to change significantly. 3) In early 1996, in response to growing doubts about the ability of EC nations to meet the Maestricht criteria and move toward monetary union by the 1999 deadline, yields on European bonds jumped. What is the likely link between the doubts on Maestricht and the EC bond yield increases? A
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Solutions 3 - FIN 330 Homework 3: International Monetary...

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