If a Developing Country Has Sufficient Reserves, the Buying and Selling

question 50

Multiple Choice

If a developing country has sufficient reserves, the buying and selling of foreign currency by the central bank is:

• A)likely to have roughly the same impact on the exchange rate as in developed countries.
• B)likely to have a much greater impact on the exchange rate than in developed countries.
• C)likely to have a much smaller impact on the exchange rate than in developed countries.
• D)completely ineffective on the exchange rate.

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Definitions:

Deep Discount Bond

A bond that sells at a significantly lower price than its par value, often due to high interest rates or the poor credit rating of the issuer.

Taxable

Pertaining to financial income or transactions subject to taxation by government authorities.

Coupons

Fixed interest payments made by a bond issuer to its bondholders at specified intervals.

Zero-Coupon Bond

A bond that is issued at a discount and does not pay annual interest but is redeemed at its face value at maturity.