Please be detailed with your answer to this practice question. practice #8 What are the three...

Please be detailed with your answer to this practice question.

practice #8

What are the three attributes of the “ideal” currency and briefly describe the benefits of each? (is this in relation to the impossible trinity concept?)

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Expert Solution

Attributes of the “Ideal” Currency

The three attributes, often referred to as the Impossible Trinity are as follows:

Exchange rate stability– In relationship to other currencies, the value of the currency would be fixed. So, the investors and traders could be relatively certain of the present and near future of foreign exchange value of each currency.

Full financial integration– In order to willingly and easily move funds from one country to another in response to perceived economic opportunities or risk by the traders and investors, complete freedom of monetary flows would be allowed.

Monetary independence – In order to pursue desired national economic policies, domestic monetary and interest rate policies would be set by each individual country, especially as they might relate to limiting inflation while combating the recessions along with fostering prosperity and full employment.

Note: The forces of economics to not allow the simultaneous achievement of all three

jeff jeffy answered 1 year ago

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