One of the principal advantages of adopting a fixed exchange rate is
A) relinquishing independent monetary policy
B) that it prevents a nation from having to impose restrictions on capital flows
C) that interest rates no longer have to be restricted
D) that currency values may appreciate or depreciate nominally, but cannot fluctuate in real terms
E) that the domestic economy is insulated from events overseas

Question

Quizplus · Accepted Answer

Relinquishing independent monetary policy is a principal advantage of adopting a fixed exchange rate because it means that the central bank must give up control over the money supply in order to maintain the fixed exchange rate.

One of the Principal Advantages of Adopting a Fixed Exchange