Adoption of a Currency Board

question 50

Multiple Choice

Adoption of a currency board

• A) is one method for achieving a soft peg policy.
• B) places responsibility for exchange rate management in the hands of an agency that is independent of political influences.
• C) mandates the use of currency in all domestic transactions.
• D) requires that a centralized institution holds interest-bearing assets denominated in the currency against which the nominal exchange rate is being fixed.
• E) mandates how the seigniorage revenue from the printing of money is to be distributed.

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Definitions:

Cross-Hedging

Hedging an asset with contracts written on a closely related, but not identical, asset.

Basis Risk

Risk that futures prices will not move directly with the cash price hedged.

May Coffee Futures

Contracts for the future delivery of coffee that are due in May, used for hedging and speculative purposes in the commodities market.

Settlement Value

The final value at which a futures contract is settled upon expiration or closing.