Under a ______________ exchange rate regime,a country's ability to expand or contract its money supply as it sees fit is limited by the need to maintain exchange rate parity.
A) forward
B) fixed
C) narrow
D) floating
E) managed float

Question

Quizplus · Accepted Answer

Under a fixed exchange rate regime, a country's currency is tied to another currency or to a commodity (like gold) and its central bank must intervene in the foreign exchange market to maintain exchange rate parity. This means that the country cannot fully control its money supply and inflation rate, as it needs to hold enough foreign exchange reserves to honor the fixed exchange rate.

Under a ______________ Exchange Rate Regime,a Country's Ability to Expand