Which is the following is true for countries with fixed exchange rate regimes?
A)Central banks of these courtiers are required to maintain exchange reserves to cover 100% of the existing domestic currency
B)Centrals banks cannot use monetary policy to affect the economics fundamentals (such as inflation)
C)These countries must use currency board
D)None of these

Question

Quizplus · Accepted Answer

Countries with fixed exchange rate regimes have their exchange rate fixed to another currency or a basket of currencies. In order to maintain the fixed exchange rate, central banks may have to use monetary policy to keep the exchange rate within a certain band. This means that the central bank's ability to affect the economics fundamentals such as inflation is limited. However, there is no requirement for countries with fixed exchange rates to maintain exchange reserves to cover 100% of the existing domestic currency, and they do not necessarily have to use currency boards.

Which Is the Following Is True for Countries with Fixed