A Problem with Currency Boards Is That the Central Bank

question 52

Multiple Choice

A problem with currency boards is that the central bank loses:

• A) control over the government budget.
• B) a flexible exchange rate is always preferred to a pegged exchange rate.
• C) influence over interest rates.
• D) the ability to supervise banks.

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Definitions:

Security Market Line

A graphical representation in the Capital Asset Pricing Model (CAPM) showing the relationship between the expected return of investments and their market risk.

Beta

A measure of a stock's volatility in relation to the overall market, indicating the stock's risk profile.

Systematic Risk

A type of risk that is unavoidable and impacts the whole market or a particular sector, often called market risk or non-diversifiable risk.