The Main Difficulty with a Fixed or Pegged Exchange Rate

question 1

Multiple Choice

The main difficulty with a fixed or pegged exchange rate regime is that the:

• A)government finds it difficult to conduct fiscal policy as it cannot always be certain of the central bank's intervention in foreign exchange markets.
• B)central bank must always sterilise foreign exchange market interventions.
• C)central bank loses the power to conduct independent domestic monetary policy.
• D)central bank will run out of official reserves of foreign exchange.

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