An advantage of a pegged exchange rate system is that it imposes monetary discipline on a country and leads to low _____.
A) monetary discipline
B) price inflation
C) exchange rate predictability
D) trade surplus
E) exports

Question

Quizplus · Accepted Answer

A pegged exchange rate system requires a country's central bank to maintain a certain exchange rate with another currency or a basket of currencies. This means that the central bank must limit the supply of its currency in the foreign exchange market, which creates monetary discipline and curbs price inflation. However, a pegged exchange rate system may also limit a country's flexibility in responding to economic shocks and can lead to trade imbalances.

An Advantage of a Pegged Exchange Rate System Is That