1. Explain why it would be virtually impossible to set an exchange rate between the Japanese yen and the U.S. dollar and to maintain a fixed exchange rate.

2. Assume the Federal Reserve believes that the dollar should be weakened against the Mexican peso. Explain how the Fed could use direct and indirect intervention to weaken the dollars value with respect to the peso. Assume that future inflation in the United States is expected to be low, regardless of the Feds actions.

3. Briefly explain why the Federal Reserve may attempt to weaken the dollar.