The authors discuss the concept of the "Impossible Trinity" or the inability to achieve simultaneously the goals of exchange rate stability, full financial integration, and monetary independence. If a country chooses to have a pure float exchange rate regime, which two of the three goals is a country most able to achieve?
A) monetary independence and exchange rate stability
B) exchange rate stability and full financial integration
C) full financial integration and monetary independence
D) A country cannot attain any of the exchange rate goals with a pure float exchange rate regime.

Question

Quizplus · Accepted Answer

With a pure float exchange rate regime, a country has the ability to attain full financial integration and monetary independence, as it allows the market forces to determine the exchange rate. However, exchange rate stability cannot be guaranteed as it is subject to fluctuations due to market forces.

The Authors Discuss the Concept of the "Impossible Trinity" or the Inability