Countries Tend to Be Less Served by a Fixed Exchange

question 54

Multiple Choice

Countries tend to be less served by a fixed exchange rate system when

• A) they are small, open economies.
• B) their inflation differentials are modest.
• C) they are highly exposed to international capital movements.
• D) their wages are quite flexible to changing market conditions.

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Definitions:

Long-term Corporate Bonds

Debt securities issued by corporations with maturities longer than ten years, offering periodic interest payments and the return of principal at maturity.

Risk Level

The degree of uncertainty and potential financial loss involved in an investment decision.

Real Rate of Return

The annual percentage return realized on an investment, adjusted for changes in the price level due to inflation or other external effects.

Nominal Rate

The stated interest rate of a financial instrument, not adjusted for inflation or other factors that affect its true cost or yield.