Why Do Governments Limit Currency Convertibility

question 36

Multiple Choice

Why do governments limit currency convertibility?

• A) To preserve foreign exchange reserves.
• B) To spend foreign exchange reserves.
• C) To keep domestic companies from investing abroad.
• D) To allow nonresidents to convert money to foreign currencies.

---

Definitions:

Product Variety

Refers to the assortment of different goods and services that a company offers to meet the varied preferences of consumers.

Monopolistically Competitive

Describes a market structure where many firms sell products that are similar but not identical, allowing them room for differentiation and some degree of price control.

Productive Efficiency

A situation where a firm or economy can no longer produce additional amounts of a good without lowering the production level of another product, utilizing resources in the best way possible.

Allocative Efficiency

A situation in which resources are distributed in a way that aligns with the preferences and needs of society, maximizing social welfare and utility.