Assume a reserve currency standard system. Reserve center is buying domestic assets. What is the most probable initial effect of this monetary measure on foreign exchange market? Select one – the most appropriate answer.

Question

BlackTom AI · Accepted Answer

The prompt describes a reserve currency standard system in which the reserve center purchases domestic assets. Such an operation injects liquidity into the domestic financial system, increasing the supply of domestic currency. When a central bank expands domestic money supply, the typical market response is a depreciation of the domestic currency due to higher supply, all else equal. This depreciation in the domestic currency implies that foreign currencies will appreciate in value relative to the domestic currency.

Option 1: 'Domestic currency will appreciate.' This conflicts with the standard monetary transmission mechanism here; easing domestic money supply tends to weaken the domestic currency, not strengthen it, so this statement is unlikely to be correct in this context.

Option 2: 'Gold will appreciate.' The action described affects exchange rates and monetary conditions, not directly the price of gold. Gold appreciation would require a specific change in demand for gold or a change in the monetary regime that directly targets gold, which is not the immediate outcome of a domestic-asset purchase by a reserve center.

Option 3: 'Foreign currencies will depreciate.' If the domestic currency depreciates due to higher domestic money supply, foreign currencies are typically observed as appreciating against the domestic currency, not depreciating. This option contradicts the expected direction of movement in most standard scenarios.

Option 4: 'No correct answer.' Given the conventional reasoning above, there is at least one plausible directional effect on exchange rates, so claiming no correct answer would be inappropriate unless all options were untenable.

Option 5: 'Foreign currencies will appreciate.' This aligns with the logic that an expansion of domestic money supply (via purchasing domestic assets) tends to weaken the domestic currency, resulting in foreign currencies strengthening (appreciating) relative to the domestic currency. This reads consistently with standard open-economy monetary effects under a reserve currency system when the reserve center uses foreign reserves to buy domestic assets.

Assume a reserve currency standard system. Reserve center is buying domestic assets. What is the most probable initial effect of this monetary measure on foreign exchange market? Select one – the most appropriate answer.单项选择题

类似问题

Which of the following events may result in the Appreciation of AUD against the U.S.dollar?

If the Australian dollar depreciates against the US dollar, holding other factors constant, which one of the followings may likely happen?

Based on the answer to your previous question, this means that in the long run the British pound is [ Select ] appreciating maintaining a constant exchange rate depreciating vis-à-vis the US dollar in real terms.

更多留学生实用工具

智能学习助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单