How Does a Country That Introduces a Currency Board Make

question 21

Multiple Choice

How does a country that introduces a currency board make its commitment to converting its domestic currency on demand into another currency at a fixed exchange rate credible?

• A) borrowing funds from the International Monetary Fund and the World Bank
• B) maintaining a trade surplus with foreign countries
• C) holding foreign currency reserves equal at the fixed exchange rate to at least 100 percent of the domestic currency issued
• D) importing more goods from foreign countries than it exports
• E) printing foreign currencies

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Definitions:

Investment

The allocation of resources, usually money, in assets with the expectation of earning a future return.

Face Value

The nominal value printed on a financial instrument like a bond or currency note, representing its legal value.

Compound Interest

Interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

Initial Deposit

The upfront payment made to open an account or initiate an investment, serving as the first financial transaction in a series.