Are black markets for foreign currencies more likely to occur in countries with an overvalued currency or with an undervalued currency? Why?
What will be an ideal response?
Black markets for foreign currencies are likely to occur in countries with an overvalued currency than with an undervalued currency. This is because, to defend an overvalued currency, the government has to sell the foreign currency and buy the domestic currency. Since selling the foreign currency provides the government with opportunities to make profits, black markets are more likely to come into existence. The exchange rates in black markets are less favorable to sellers of domestic currency than in a flexible exchange rate.
You might also like to view...
Which of the following is not an example of derived demand?
a. More people want to plant gardens in the spring; therefore, demand for hoes and shovels increases then. b. Strong ticket sales for a concert cause the producers to schedule an extra show and demand more ushers. c. Increased use of robots leads to a decrease in demand for labor. d. The development of alternative fuels made from corn leads to an increase in demand for corn. e. Increasing demand for music leads to the construction of more recording studios.
The expected revenues in auctions with risk-averse bidders with independent private values will be:
A. English = Second price = First price = Dutch. B. English > Second price > or < First price = Dutch. C. English > Second price > First price = Dutch. D. First price = Dutch > English = Second price.
Consider a wine maker who has put her wine in bottles. The question is whether to store the wine for a marginal cost of $1 per year or to sell the wine today at a price of $10. If the interest rate is 6%, how much must the price of the wine increase in the next year to justify storing it?
A) $1.66 B) $1.27 C) $0.72 D) $0.45
The use of public money to attract sports is
A. overwhelmingly in baseball. B. limited to football. C. expanding to include spring training baseball sites. D. now causing the Master's golf tournament to move to Las Vegas.