Which is the following is true for countries with fixed exchange rate regimes?
A) Central banks of these courtiers are required to maintain exchange reserves to cover 100% of the existing domestic currency
B) Centrals banks cannot use monetary policy to affect the economic fundamentals (such as inflation)
C) These countries must use currency board
D) The external value of the country's currency will simply depreciate to the level at which there is no excess supply of the country's currency

Question

Quizplus · Accepted Answer

Countries with fixed exchange rate regimes are committed to maintaining a certain exchange rate with another currency, which they typically achieve by pegging their currency to a more stable currency or a basket of currencies. Central banks of these countries cannot use monetary policy to affect economic fundamentals such as inflation because changes in interest rates would affect the exchange rate, and the central bank would then have to intervene to maintain the fixed rate. Therefore, they rely heavily on fiscal policy to manage the economy.

Which Is the Following Is True for Countries with Fixed