Under a Floating Exchange Rate Regime with a Low Degree

question 11

Multiple Choice

Under a floating exchange rate regime with a low degree of capital mobility, a change in the exchange rate value of domestic currency following expansionary fiscal policy will tend to:

• A)deteriorate the current account.
• B)decrease the country's holdings of official reserve assets.
• C)give a trade-based stimulus to domestic production.
• D)cause a surplus in the financial account.

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Definitions:

Deferred Tax Asset

This asset arises when a company pays more taxes to the government than it currently owes in its financial statements, to be used for future tax relief.

Pre-Tax Income

Earnings before taxes (EBT), calculated as a company's total revenues minus expenses, excluding income taxes, during a reporting period.

Realized Gain

The profit earned from selling an asset for more than its purchase price, indicating a successful investment.

Trading Securities

Financial assets that are bought and held primarily for selling in the near term to generate income on short-term price differences.