Suppose the Crawling Peg System Is in Place and You

question 26

Multiple Choice

Suppose the crawling peg system is in place and you are in business with another country. You feel there is little risk as the currency of that country is highly valued relative to the dollar. When you go to exchange this foreign currency for dollars, however, you find yourself consistently unable to do so through official channels. Which of these is the most likely cause, and what may you ultimately realize?

• A)The foreign currency is overvalued at the official exchange rate; the real value of the foreign currency is lower and it might only be obtained illegally.
• B)The foreign currency is undervalued at the official exchange rate; no one will be willing to exchange your foreign currency for dollars.
• C)The foreign currency is overvalued; this will likely be corrected in a very short time frame.
• D)The foreign currency is undervalued; this will likely be corrected in a very short time frame.

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Definitions:

Rent-Control Scheme

A rent-control scheme is a government policy that sets a maximum price that can be charged for rental housing, aiming to make housing more affordable.

Equilibrium Rental Price

The price at which the quantity of rental properties supplied equals the quantity demanded.

Quota Rent

The earnings exceeding the normal anticipated returns due to import or export quotas.

Deadweight Loss

A decrease in economic effectiveness occurring when a good or service doesn't reach its free market equilibrium.