Question

A country may find it difficult to maintain a pegged exchange rate system in the face of (Strong or Weak) economic conditions.

True or False: The value of many Asian currencies, that were pegged to the dollar in the 1990’s, could not be sustained during economic downturns.

True or False: In order to maintain the currency board, the interest rate in the two countries must be similar.

Answer 1

1. WEAK-. at the time of weak economic condition, the country will be finding it difficult to maintain pegged exchange rate system, as there will be too much pressure on the governments books of accounts.

2. TRUE- the given statement is true because value of many asian currencies failed because they were pegged to American Dollars at the time of crisis.

3. FALSE- given statement about currency board is FALSE because interest rate must not be similar in two countries.