Question

A fixed exchange rate regime in which the monetary authority is legally required to hold foreign exchange reserves backing 100% of its domestic currency issuance is best described as:

a. Dollarization.
b. A currency board.
c. A monetary union.
d. A pegged exchange rate.

Answer 1

A fixed exchange rate regime in which the monetary authority holds foreign exchange reserves backing 100% of its domestic currency issuance is known as a currency board.

Step-by-step explanation:

A fixed exchange rate regime in which the monetary authority is legally required to hold foreign exchange reserves backing 100% of its domestic currency issuance is best described as a currency board. In a currency board, the central bank or monetary authority holds foreign currency reserves equal to the amount of domestic currency in circulation. This ensures a fixed exchange rate and helps stabilize the country's currency.