Which of the following defines a hard peg? A) An exchange rate determined by the

Question

Which of the following defines a hard peg? A) An exchange rate determined by the market B) An exchange rate that fluctuates within a set band C) An exchange rate that is not allowed to vary D) An exchange rate that is backed by gold Which of the following defines a soft peg? A) An exchange rate determined by the market B) An exchange rate that fluctuates within a set band C) An exchange rate that is not allowed to vary D) An exchange rate that is backed by gold Soft pegs that are periodically adjusted are called A) hard pegs. B) snakes. C) managed floats.D) crawling pegs. A reason why fixed exchange rate systems might lower growth is that A) they deter international trade. C) they are more risky B) monetary policy cannot be used. D) inflation may be higher. Which of the following countries is NOT involved in a free trade agreement with the U.S.? D) China A) Jordan B) Australia C) Guatemala

Explanation / Answer

a) A hard peg is where the currency value is not allowed to vary and it severely limits the actions of the monetary authority in the country. The correct answer to this question is "C" an exchange rate that is not allowed to vary.

b) A soft peg is used to manage the value of currency within a given band and avoid any fluctuation in its value abruptly. The correct answer to this question is "B". An exchange rate that fluctuates between a band.

c) Soft pegs are that are periodically allowed to adjust are called "managed floats". They are in between hard peg or fixed exchange rates and floating exchange rates. The correct answer to this question is "C".

d) The main reason why fixed exchange rates system might lower growth is that they can deter international trade. The correct answer to this question is "A".

e) the US doesn't have a free trade agreement with "China" with Jordan they had a deal in 2001, and they have similar deals with 20 other countries including Australia and Guatemala.  

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