Suppose Two Countries Make a Credible Commitment to Fix Their

question 51

Multiple Choice

Suppose two countries make a credible commitment to fix their bilateral exchange rate.In such a situation,we know that

• A)the uncovered interest parity condition no longer holds.
• B)the real exchange rate must be constant as well.
• C)each country can freely allow its interest rate to diverge from that of the other country.
• D)the interest rate in the two countries must be equal.
• E) neither country will run a trade deficit.

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