Comparing various exchange systems, which system offers a nation the least control over monetary policy?
A) flexible exchange rates and a closed economy
B) a closed economy
C) an open nonpeg
D) an open peg

Question

Quizplus · Accepted Answer

An open peg system offers a nation the least control over monetary policy. In an open peg system, a country pegs its currency to another currency or a basket of currencies, and the central bank has to intervene in the foreign exchange market to maintain the exchange rate at the pegged level. This means that the country's monetary policy is determined by the pegged currency's central bank, and the country cannot adjust its interest rates or money supply to achieve its own economic objectives. In contrast, in a flexible exchange rate system, a country's central bank can adjust its interest rates or money supply to stabilize the economy, but it also exposes the country to exchange rate fluctuations.

Comparing Various Exchange Systems, Which System Offers a Nation the Least