This Question Concerns the Mechanism of a Reserve Currency Standard

question 69

Essay

This question concerns the mechanism of a reserve currency standard.
Two countries, X and Y, have two currencies, x and y, fixed to the reserve currency, the U.S. dollar. Suppose the exchange rate between x and the U.S. dollar is 3x per dollar. Suppose the exchange rate between y and the U.S. dollar is 5y per dollar. Explain (using numbers) the mechanism if the x-y exchange rate was 0.8 x per y.

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Definitions:

Differential Setting

In protective relays, refers to the adjustment that determines the difference in current or voltage at which the device will operate to protect electrical equipment.

Compounding

Generally indicates the voltage increase caused by the series field as compared to the voltage drop of the generator.

Exciting

The process of supplying a magnetic field to a core or coil in electrical devices to induce a magnetic flux.

Magnetic Lines

Imaginary lines used to represent the direction and strength of a magnetic field around a magnet or an electric current.