Under a hard peg, a country commits to a fixed nominal exchange rate for an indefinite period of time. There is little to no flexibility for the central bank or government to alter the exchange rate as required. This is often used by smaller, less-developed countries to provide stability and attract foreign investment.

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Under a Hard Peg

Question 19

Multiple Choice

Under a hard peg

A) only industrialized nations commit to fixed nominal exchange rates.
B) the central bank can alter the value of the exchange rate as required.
C) only the federal government can alter the nominal exchange rate.
D) a country has a strict rule of no government intervention to target the nominal exchange rate.
E) a country commits to a fixed nominal exchange rate for an indefinite period of time.

Correct Answer: