Based on the premise that, other things equal, countries would prefer a fixed exchange rate, which of the following statements is NOT true?

A) Fixed rates provide stability in international prices for the conduct of trade.

B) Fixed exchange rate regimes necessitate that central banks maintain large quantities of international reserves for use in the occasional defense of the fixed rate.

C) Fixed rates are inherently inflationary in that they require the country to follow loose monetary and fiscal policies.

D) Stable prices aid in the growth of international trade and lessen exchange rate risks for businesses.

Question

Stacy Fitzpatrick

Business

6 April, 05:55

Based on the premise that, other things equal, countries would prefer a fixed exchange rate, which of the following statements is NOT true?

A) Fixed rates provide stability in international prices for the conduct of trade.

B) Fixed exchange rate regimes necessitate that central banks maintain large quantities of international reserves for use in the occasional defense of the fixed rate.

C) Fixed rates are inherently inflationary in that they require the country to follow loose monetary and fiscal policies.

D) Stable prices aid in the growth of international trade and lessen exchange rate risks for businesses.

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Answers (1)

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Timmy · Answer 1

C) Fixed rates are inherently inflationary in that they require the country to follow loose monetary and fiscal policies.

Explanation:

The following are reasons why countries would prefer a fixed exchange rate:

1) Fixed rates provide stability in international prices for the conduct of trade.

2) Fixed exchange rate regimes necessitate that central banks maintain large quantities of international reserves for use in the occasional defense of the fixed rate.

3) Stable prices aid in the growth of international trade and lessen exchange rate risks for businesses.