1. Toward the end of 1999, the central bank (Reserve Bank) in Zimbabwe stabilized the Zimbabwe dollar, the Zim for short, at Z$38 > USD and privately instructed the banks to maintain that rate. In response, at the end of 1999, an illegal market developed wherein the Zim traded at Z$44 > USD. Are you surprised at rumors that claim corporations in Zimbabwe were "hoarding" USD200 million? Explain.
2. We described how exchange rate risk could be hedged using forward contracts. In pegged or limited-flexibility exchange rate systems, countries imposing capital controls sometimes force their importers and exporters to hedge. First, assuming that forward contracts are to be used, and an exporter has future foreign currency receivables, what will the government force him to do? Second, how does this help the government in defending their exchange rate peg?