C) It means that it will be possible to buy fewer foreign (imported) goods

3. What influence do flexible rates exert on the balance of payments?

A) Flexible rates automatically adjust so as eventually to increase balance of payments deficits

Or surpluses.

B) Flexible rates automatically adjust so as eventually to eliminate deficits, but the balance of

Payments of the country does not practically depend on it.

C) Flexible rates automatically adjust so as eventually to eliminate balance of payments deficits

Or surpluses.

4. In what way have some nations fixed or “pegged ” their exchange rates?

A) Government must intervene directly or indirectly in the foreign exchange market. The most

Desirable means of pegging an exchange rate is to manipulate the market through the use of

Official reserves.

B) This is done by decreeing a moratorium on the exchange rates and by implementing extra

Antidumping measures.

C) As demand and supply shift over time, government must adjust the exchange rate monthly.

5. What do proponents of fixed exchange rates contend?

a) Large and persistent deficits may deplete a nation’s reserves.

B) Fixed rates result in decreasing trade and financial transactions, but national businesses gain.

C) Proponents of fixed exchange rates contend that such rates lessen the risks and uncertainties.

6. What would you refer to disadvantages of exchange controls?