If a Nation Maintains Fixed Exchange Rates, It May Be

question 50

Multiple Choice

If a nation maintains fixed exchange rates, it may be a haven for foreign investment if:

• A) investors (irrationally fearing the peg will not hold) demand higher interest rates (risk premium) on investments denominated in the currency.
• B) investors make more money when they go against conventional wisdom and put money in riskier investments.
• C) there is more certainty over the real return on investments.
• D) its government taxes returns from those investments.

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Definitions:

Risky Investment

An investment with a high potential for loss but also the opportunity for substantial gains.

Organizational Decisions

Choices or judgments made within an organization that determine its actions and strategies.

Quality

The standard of something as measured against other things of a similar kind; the degree of excellence of something.

Responsibility

An obligation to perform or oversee tasks and duties effectively, often with an implication of accountability for the outcomes.