Fixed exchange rate system instead of flexible exchange rate

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Reference no: EM13800484

Some countries have fixed exchange rate systems instead of flexible exchange rate systems. Which of the following is a reason why fixed exchange rate systems have limited abilities to use monetary policy?

a. Under a fixed exchange rate system, if a central bank conducts a monetary policy, there is no change in domestic interest rates because people only respond to exchange rate changes.

b. Under a fixed exchange rate system, central banks do not exist so monetary policy cannot be conducted.

c. Under a fixed exchange rate system, if a central bank conducts a monetary policy, then it puts pressure on the exchange rate and the central bank would have to offset that effect.

d. All of the above.

Reference no: EM13800484

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