An advantage of a swap over futures and options is that
A) they can be written for long periods.
B) they are more liquid.
C) they carry less default risk.
D) there is no need to assess the creditworthiness of participants.
A
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The foreign exchange market
A) is a government-run market where foreign currencies are traded. B) is a bank-owned market through which people buy and sell currencies. C) refers to the entire array of institutions through which people buy and sell currencies. D) an open market run by the Federal Reserve through which banks buy and sell currencies.
For this question, use the Keynesian IS—LM model with flexible exchange rates. Eastland's main trading partner is Westland. Suppose Westland undertakes an expansionary monetary policy
(a) What is the effect of Westland's expansionary monetary policy on Eastland's real exchange rate in the short run, assuming no change in Eastland's policies? (b) What is the effect of Westland's expansionary monetary policy on Eastland's real exchange rate in the long run, assuming no change in Eastland's policies? (c) What is the effect of Westland's expansionary monetary policy on Eastland's nominal exchange rate in the short run and in the long run?