Which of the Following Is Not an Advantage to a Country

question 69

Multiple Choice

Which of the following is not an advantage to a country of choosing to fix its exchange rate against a major currency, rather than choosing a floating exchange rate?

• A)Pegging allows the country more flexibility in conducting monetary policy.
• B)Pegging helps avoid inflation in imported goods caused by currency depreciation for countries with significant levels of imports.
• C)Pegging insures that interest payments stemming from foreign loans do not fluctuate with the value of the currency.
• D)Pegging reduces the uncertainty caused by currency fluctuations and thereby simplifies business planning.
• E)Pegging often grants a central bank additional credibility.

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Definitions:

Bilateral Trade Surpluses

The condition where a country has a positive trade balance (exports exceed imports) with another specific country.

Imposes a Tariff

The action by a government to establish a tax on imported or, occasionally, exported goods.

Korean Imports

Goods and services bought by residents of a country from Korea, which could include electronics, vehicles, and other products.

U.S. Market

The economic environment for buying and selling goods and services within the United States, encompassing all activities of production, promotion, and distribution.