Explain How a Pegged Exchange-Rate System Works

question 86

Essay

Explain how a pegged exchange-rate system works.Why would a country choose to follow this system?

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Definitions:

X-Inefficiency

Occurs when a firm operates at higher costs than necessary, often due to lack of competitive pressure or managerial inefficiency.

Usury Law

A legal regulation that limits the maximum interest rate that can be charged on loans, designed to protect consumers from exorbitant rates.

Market Equilibrium

The state in which the supply of an item matches its demand, resulting in a stable price for the item.

Interest Rate

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage.