In nations that cannot borrow in their own currencies, which exchange rate system is more destabilizing and less useful in terms of stabilizing GDP?
A) floating exchange rates
B) fixed exchange rates
C) banded exchange rates
D) open pegs

Question

Quizplus · Accepted Answer

Floating exchange rates can be more destabilizing for countries that cannot borrow in their own currencies, as they are more susceptible to currency speculation and sudden shifts in exchange rates, which can lead to economic instability and make it harder to stabilize GDP. Fixed, banded, or pegged rates provide more predictability.

In Nations That Cannot Borrow in Their Own Currencies, Which