Under a Fixed Exchange Rate System

question 50

Multiple Choice

Under a fixed exchange rate system,

• A) an anchor country loses control over its monetary policy.
• B) a country that ties its currency to that of another country gains control of the other country's monetary policy.
• C) a country that ties its currency to that of another country loses control over its monetary policy.
• D) a country that ties its currency to that of another country acquires greater control over its monetary policy.

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Definitions:

Demand Deposits

Bank accounts from which money can be withdrawn at any time without any notice to the bank.

Original Maturity

The original length of time until a financial instrument, such as a bond or loan, is due to be repaid in full.

Required Reserves

The minimum amount of reserves a bank needs to hold as mandated by central banks to ensure financial stability and liquidity.

Demand Deposits

Demand Deposits are bank account funds that can be withdrawn at any time without any advance notice to the bank.