Question

When countries use currency boards to fix exchange rates, or are part of a currency union,...

When countries use currency boards to fix exchange rates, or are part of a currency union, or have formally adopted the currency of another country, this is considered a(n):

A) hard peg.

B) soft peg.

C) inflexible peg.

D) none of these.

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Answer #1

HARD PEG

  • It  limit the possibility of an independent monetary policy in a country
  • Its examples are Currency board and Dollarization

Lets deal with CUrrency boards

  • They maintain the exchange rate with the foriegn currency
  • They keep their domestic currency in circulation
  • It controls the rate of inflation
  • The stability of the price is improved in this
  • currency board backs the money supply

HOPE THIS HELPS

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