If the Central Banks of the World Chose to Diversify

question 10

Multiple Choice

If the central banks of the world chose to diversify their foreign-exchange reserves away from the dollar and into the euro,

• A)this would have the result of a strengthening of the value of the dollar.
• B)this have the result of a weakening in the value of the dollar.
• C)this would not have much impact, as the information would be lost in the day-to-day volatility of exchange rates.

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Definitions:

Centered

In statistics, adjusting data values by subtracting the mean of the data set from each value to have an average of zero.

Perfect Substitute

Goods or services that can be used in exactly the same way and are considered interchangeable by the consumer.

Indifference Curve

A graph representing combinations of two goods that provide an individual with the same level of satisfaction and utility.

Convex Preferences

A situation in consumer theory where a consumer prefers combinations or mixtures of goods to extreme amounts of either good, illustrating a desire for diversified consumption.