Suppose that country A pegs its currency to the currency of country B. Which of the following will NOT be a benefit of this arrangement to country A?
A) lower transactions costs for A to conduct international trade with country B
B) increased capital flows between the two countries because of increased certainty of future exchange rates
C) decreased migration between the two countries because of increased certainty of future exchange rates
D) lower costs of economic transactions costs between the two countries, leading to welfare gains for country A

Question

Quizplus · Accepted Answer

Pegging a currency to another country's currency typically leads to increased certainty of future exchange rates, which can benefit both countries by lowering transaction costs and increasing capital flows. However, it is unlikely to have a significant effect on migration between the two countries.

Suppose That Country a Pegs Its Currency to the Currency