Which of the Following Arguments Is Against the Use of Fixed

question 42

Multiple Choice

Which of the following arguments is against the use of fixed exchange rates?

• A) Monetary discipline is the most important determinant of a strong economy.
• B) Each country has the freedom to choose its own inflation rate.
• C) Market speculation can cause fluctuations in exchange rates.
• D) Governments are likely to expand the monetary supply far too rapidly due to political pressures.

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Definitions:

Cost of Equity

The return a company is expected to provide to its shareholders to compensate them for the risk of investment.

Debt

An amount of money borrowed by one party from another, typically for large medium or long-term financial projects, with an obligation to pay back with interest.

Bankruptcy

A judicial process concerning an individual or company that cannot settle its due financial obligations.

M&M Without Taxes

A part of Modigliani and Miller's theory on corporate finance that suggests market value of a firm is unaffected by its capital structure in a tax-free environment.