The Main Difficulty with a Fixed or Pegged Exchange Rate

question 1

Multiple Choice

The main difficulty with a fixed or pegged exchange rate regime is that the:

• A)government finds it difficult to conduct fiscal policy as it cannot always be certain of the central bank's intervention in foreign exchange markets.
• B)central bank must always sterilise foreign exchange market interventions.
• C)central bank loses the power to conduct independent domestic monetary policy.
• D)central bank will run out of official reserves of foreign exchange.

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Definitions:

Ethiopia

A country located in the Horn of Africa, known for its ancient culture, archaeological sites, and being one of the oldest locations of human existence.

Nanjing

The capital city of Jiangsu Province in China, known historically for events such as the Nanjing Massacre during the Second Sino-Japanese War.

French Defeat

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A military operation during World War II where US bombers led by Lieutenant Colonel James Doolittle conducted an air raid on Tokyo and other Japanese cities in 1942.