Which of the Following Is a Drawback of the Currency

question 68

Multiple Choice

Which of the following is a drawback of the currency board system?

• A)The ease with which governments can set and manipulate interest rates acts as a dampener.
• B)Higher domestic inflation rates compared to the inflation rate in the country to which the currency is pegged can make the currency uncompetitive.
• C)The currency board can issue additional domestic notes and coins only when there are foreign exchange reserves to back it,thus arresting liquidity.
• D)It has all the disadvantages of a floating exchange rate regime.

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Definitions:

Monopoly Market

A market structure characterized by a single seller controlling the entire market supply of a product or service.

Terms of Sale

The conditions and stipulations under which a sale is conducted, including payment, delivery, and warranty details.

Economies of Scale

The cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output decreasing with increasing scale.

Natural Monopoly

A market condition where a single firm can supply a good or service to an entire market more efficiently than if there were multiple suppliers, due to high fixed or startup costs.