C. Government intervention

Governments and central banks sometimes try to change the value of their currency. They intervene in exchange markets, using foreign currency reserves to buy their own currency - in order to raise its value - or selling to lower it. The resulting rates are known as managed floating exchange rates. But speculators generally have a lot more money than a government has in its reserves of foreign currency, so central banks or governments only have limited power to influence exchange rates.

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1.Are the following statements true or false? Find reasons for your answers in A and B opposite.

1. Purchasing power parity is a theory that doesn’t apply in reality.

2. Inflation should lead to an increase in the value of a country’s currency.

3. Speculators buy currencies when they expect their value to increase.

4. Speculators generally sell currencies if their interest rate rises.

5. Currency traders offer different buying and selling prices. *

6. A lot more currency is exchanged for buying or selling goods than for speculation.

7. The Federal Reserve will no longer exchange US dollars for gold.

8. Most exchange rates used to be fixecj; now they float.

9. If more people want to buy a currency than sell it, its price will go down.