In 1965, the (old) French Franc, a currency participating in the Bretton-Woods arrangement, was pegged to the dollar at $.2/ per 100 French Francs (500 Francs per dollar). Between 1965 and 1970, the rate of inflation in France was twice as high as in the US (the French CPI went from 100 to 110 while the US CPI went from 100 to 105). a. Calculate the rea/ exchange rate France/ US (based on the above data) in 1965 and in 1968. 1965: 1970: b. What happened to the French Franc with respect to the dollar? (underline the correct answer below) A real or nominal appreciation or depreciation of the FF. C. What was the effect on the French balance of trade? improves worsens no change d. What are the resulting pressures on the FF (nominal ER)? to appreciate or to depreciate (with respect to the $) e. How does the Banque de France intervene to keep its parity with the $7 it buys $ or it sells $ f . What is the effect on the Banque de France foreign reserves? they increase or they decrease g. How does the Fed intervene to keep $ parity with the FF? h . Assuming no sterilization' from the part of the Banque de France, what are the effects of these changes in its foreign reserves 1. on the French money supply increases or decreases or no change2. on French prices on the long run? increase or decrease or no change Finally, France could counteract these effects on prices (if any and in whichever direction) by using monetary policy? What kind of monetary policy? Open market purchase or open market sale j. Alternatively what kind of exchange rate policy should France use? devaluation of FF or revaluation of FF