(a)
- Explain how Argentina’s high inflation rate could put downward pressure on the official exchange rate of the Argentinian peso. [3]
- Explain how managing the peso to uphold an official exchange rate has led to the change in Argentina’s foreign exchange reserves shown in Fig. 1. Use a diagram to support your answer. [4]
(b)[3]
Explain why fixing the price of the US dollar in terms of the Argentinian peso led to a black (illegal) market.
(c)[4]
Explain the factors that will determine whether the rise in the interest rate to 38% will lower inflation and attract funds into Argentina.
(d)[6]
Discuss the advantages of fixing the value of a currency at an official rate. Assess whether on balance a freely floating rate is more likely to be beneficial for Argentina.