Aruba Pegs Its Currency (The Aruban Florin) to the U

question 109

Multiple Choice

Aruba pegs its currency (the Aruban florin) to the U.S. dollar at a rate of Af 2 = $US1. Suppose that the actual exchange rate is equal to this pegged rate. Which of the following best describes the effect on Aruba's interest rates from purchasing dollars?

• A) Interest rates will rise.
• B) Interest rates will fall.
• C) Interest rates will not change.
• D) Interest rates will rise as the exchange rate depreciates.

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