Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
27. The monetary authority of The Stoddard Islands will exchange its currency for U.S. dollars at
a one-for-one ratio. As a result, the exchange rate of the Stoddard Islands currency with the U.S.
dollar is 1.00, and many businesses in the Islands will accept U.S. dollars in transactions. This
exchange rate regime is best described as:
A. a fixed peg.
B. dollarization.
C. a currency board.
Hint: The country has not formally dollarized because it continues to issue a domestic currency. A conventional
fixed peg allows for a small degree of fluctuation around the target exchange rate. A currency board arrangement
is an explicit commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate.
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