After you have studied Economics in the News on pp. 682–683, answer the following questions.

a. In which year or years did the Swiss National Bank not intervene in the foreign exchange market to lower the franc exchange rate? How can you tell?

b. What did the Swiss National Bank do in 2018?

Make a graph like Fig. 3 on p. 683 to illustrate your answer.

c. The news article identifies Vietnam as a country that might be a currency manipulator.

What data would you need to check that claim?

d. In 2021, Vietnam’s foreign exchange reserves increased by $18 billion and the dong (Vietnam’s currency) depreciated from 43 to 42 U.S. cents per 10,000 dongs. What made that happen?

e. Make a graph like Fig. 3 on p. 683 to illustrate the effect of the $18 billion increase in Vietnam’s foreign exchange reserves and depreciation of the dong in 2021.

Transcribed Image Text:

A central bank can use its country's foreign exchange reserves to manipulate the exchange rate of its currency. If we define a country's exchange rate as U.S. dollars per unit of its currency, a country's currency depreciates when the exchange rate falls. To raise its exchange rate and appreciate its currency on the foreign exchange market, a central bank uses some U.S. dollars to buy its own currency. The increase in de- mand for the country's currency raises the exchange rate and appreciates the country's currency. To lower its exchange rate and depreciate its currency on the foreign exchange market, a central bank uses its own currency to buy U.S. dollars. The increase in supply of the country's currency lowers the exchange rate and depreci- Change in reserves (billions of U.S. dollars) 150 120 90 60 30 -30 2013 2014 2015 2016 2017 2018 2019 2020 Year Figure 1 Changes in Switzerland's U.S. Dollar Reserves