Which of the Following Is True for an Economy That

question 16

Multiple Choice

Which of the following is true for an economy that has adopted a fixed exchange rate regime?

• A) The demand for the domestic currency will always be equal to the supply of the domestic currency.
• B) The smuggling of alcohol, cigarettes and drugs will be recorded under the current account.
• C) Purchasing power parity is maintained through changes in the nominal exchange rate.
• D) The nation's balance of payments will not always be equal to zero.

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Definitions:

Promissory Note

A written, legally binding document in which one party promises to pay another a defined sum of money at a specified time or upon demand.

Certificate of Deposit

A time deposit financial product offered by banks to individuals that pays interest and returns the principal after a fixed period.

Draft

A preliminary version of a document or plan, subject to revision and refinement.

Negotiable Instruments

Financial documents that promise payment to the bearer or named party and can be transferred by endorsement or delivery, such as checks, promissory notes, and bills of exchange.