Advantages of a Fixed Exchange Rate Include

question 21

Multiple Choice

Advantages of a fixed exchange rate include

• A)reduction in exchange rate risk for businesses.
• B)reduction in transactions costs.
• C)reduction in trading frictions.
• D)all of the options

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Definitions:

Call Option

An economic deal that permits the buyer to have the option to acquire a stock, bond, commodity, or another asset at a predetermined price during a designated period, without being obligated to do so.

Put Option

A financial contract giving the holder the right, but not the obligation, to sell a specific amount of an underlying asset at a set price within a specific time.

Warrant

An instrument that gives the holder the right, but not the obligation, to buy or sell a certain asset at a specified price prior to or on a specific date.

Exercise Price

The specified price at which the option holder can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset.