1. Assume the existence of two speculators, who are considering attacking a fixed exchange rate regime with R= 8 units of reserves. Each speculator controls 4 units of domestic currency. The cost of attacking equals C and it is independent of the size of the attack. The central bank is currently setting the fixed exchange rate to 5 = 1. If the attack is successful, then the exchange rate will depreciate to S' = 1.5. (a) [2 points) If the cost of attacking is C = 1, will there be a devaluation? (b) [3 points] Some economists propose a Tobin tax to prevent currency crises. A Tobin tax is a tax on on all transactions in the foreign exchange market. Suppose that a Tobin tax in this economy would increase the cost of attacking to C = 1.5. Would this Tobin tax prevent a potential currency crisis? 1. Assume the existence of two speculators, who are considering attacking a fixed exchange rate regime with R= 8 units of reserves. Each speculator controls 4 units of domestic currency. The cost of attacking equals C and it is independent of the size of the attack. The central bank is currently setting the fixed exchange rate to 5 = 1. If the attack is successful, then the exchange rate will depreciate to S' = 1.5. (a) [2 points) If the cost of attacking is C = 1, will there be a devaluation? (b) [3 points] Some economists propose a Tobin tax to prevent currency crises. A Tobin tax is a tax on on all transactions in the foreign exchange market. Suppose that a Tobin tax in this economy would increase the cost of attacking to C = 1.5. Would this Tobin tax prevent a potential currency crisis