How does a country that introduces a currency board make its commitment to converting its domestic currency on demand into another currency at a fixed exchange rate credible?
A)By borrowing funds from the International Monetary Fund and the World Bank
B)By maintaining a trade surplus with foreign countries
C)By holding foreign currency reserves equal at the fixed exchange rate to at least 100 percent of the domestic currency issued
D)By importing more goods from foreign countries than it exports
E)By printing foreign currencies

Question

Quizplus · Accepted Answer

A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate. To make this commitment credible, the currency board holds reserves of foreign currency equal at the fixed exchange rate to at least 100 percent of the domestic currency issued.

How Does a Country That Introduces a Currency Board Make