A Common Argument for Fixed Exchange Rates Is That They

question 33

Multiple Choice

A common argument for fixed exchange rates is that they:

• A) make trade more costly, and thus encourage domestic citizens to buy domestically produced output.
• B) give central banks greater freedom in adjusting their economy's level of output.
• C) forever free the central bank from have to adjust the exchange rate to fundamental changes in the economy.
• D) All of the above.
• E) None of the above.

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Definitions:

Discount Rate

This interest rate is used in the framework of discounted cash flow analysis to determine the present worth of cash flows anticipated in times ahead.

Simple Rate of Return

A financial metric that measures the efficiency of an investment as the annual income divided by the initial investment cost.

Time Value of Money

The principle that a sum of money is worth more now than the same sum in the future due to its potential earning capacity.