EC7075 INTERNATIONAL MONEY AND FINANCE

SECTION A

(Compulsory Question)

1. Discuss two models of exchange determination; one assuming fully flexible prices and one assuming fixed prices. How does the working of monetary policy vary in the two models?

SECTION B

(Answer ONE question)

1. What is meant by currency substitution? What are the driving forces behind this phenomenon?

2. How does an exchange rate target zone operate and what is meant in this context by smooth pasting?