What is the most powerful argument against a fixed exchange rate?
A) The nation must administer the rates at all currency exchange venues, and it is expensive to do.
B) The nation usually gets opposition from other trading partners who are excluded.
C) The nation has to have a large store of gold on hand to exchange at fixed rates.
D) The nation gives up its ability to control its money supply and affect its own interest rates.

Question

Quizplus · Accepted Answer

A fixed exchange rate means that a nation has to maintain a certain exchange rate between its currency and other currencies, typically by buying or selling its own currency on the foreign exchange market. This requires the nation to have a large store of foreign currency reserves, which can be expensive to maintain. Additionally, a fixed exchange rate system takes away a nation's ability to control its own money supply and interest rates, as it must maintain the fixed rate regardless of economic conditions. This can lead to imbalances and economic instability. Therefore, the most powerful argument against a fixed exchange rate is that it limits a nation's ability to control its monetary policy.

What Is the Most Powerful Argument Against a Fixed Exchange