You Have Been Hired as a Consultant to the Central

question 6

Multiple Choice

You have been hired as a consultant to the central bank for a country that has for many years suffered from repeated currency crises and depends heavily on the U.S. financial and product markets. Which of the following policies would have the greatest effectiveness for reducing currency volatility of the client country with the United States?

• A) dollarization
• B) an exchange rate pegged to the U.S. dollar
• C) an exchange rate with a fixed price per ounce of gold
• D) an internationally floating exchange rate

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Definitions:

Bond Discount

The variance between a bond's official value and the reduced price at which it is actually sold.

Present Value

Present value is a financial concept that describes the value of an expected income stream determined as of the date of valuation.

Lease Payments

Regular payments made by a lessee to a lessor in exchange for the right to use an asset, such as real estate or equipment.

Bonds Payable

Long-term liabilities representing money owed by an entity to bondholders, to be paid back at a specified future date with interest.