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:

Rate

The speed or frequency at which an event or action occurs within a specified period.

Capillary Refill Time

The time taken for color to return to an external capillary bed after pressure is applied, indicating the circulatory status.

Palpating

The act of examining part of the body by touch, especially for medical purposes.

Blanching

The process of whitening or pale appearance when pressure is applied to the skin, indicating reduced blood flow or perfusion.