Why Might a Nation Seek to Maintain a Pegged Exchange

question 57

Multiple Choice

Why might a nation seek to maintain a pegged exchange rate?

• A) It makes business planning easier for firms involved in the global economy.
• B) It removes the need to intervene in the foreign exchange market.
• C) It ensures that the exchange rate will remain at its equilibrium.
• D) It makes their currency more attractive on the foreign exchange market.

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Definitions:

Federal Reserve District Bank

One of the 12 regional banks in the Federal Reserve System, operating under the supervision of the Federal Reserve Board, and helping to implement monetary policy.

Individual Bank

A single banking institution that operates to accept deposits, offer loans, and provide other financial services to its customers.

Deposits

Money placed into a financial institution for safekeeping, which can earn interest over time.

Excess Reserves

The amount of reserve funds that a bank holds beyond what is required by regulations, which can be loaned out or invested.