If two countries choose to fix the exchange rates among their currencies, then:
A)the nominal exchange rate will remain consistent independent of inflation rates.
B)the country with high rate of inflation will eventually suffer current account deficits.
C)the country with a current account deficit can increase its money supply to delay the need for intervention.
D)there usually is more pressure on the government whose country has an overall payments surplus than on the government whose country has an overall payments deficit.

Question

Quizplus · Accepted Answer

When two countries fix their exchange rates, the country with higher inflation will likely see its goods become less competitive, leading to current account deficits.

If Two Countries Choose to Fix the Exchange Rates Among