International Capital-Flow Shocks to an Economy with Fixed Exchange Rates

question 8

Multiple Choice

International capital-flow shocks to an economy with fixed exchange rates necessitates:

• A)an offsetting fiscal policy.
• B)devaluation or revaluation of the domestic currency.
• C)international borrowing by the domestic government.
• D)intervention in the foreign exchange market by the domestic monetary authorities.

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Definitions:

Capital Equipment Purchases

Expenditures made by a company to acquire or upgrade physical assets such as machinery or buildings.

Cash Budgeting

The process of planning and managing a company's cash inflows and outflows over a specific period of time, predicting its future cash position.

Carrying Costs

The expenses associated with holding inventory, including storage, insurance, taxes, and opportunity costs, which can affect a company's profitability.

Shortage Costs

Costs incurred when the demand for a product or service exceeds the supply, leading to potential loss of sales or customer dissatisfaction.