Question

A fixed peg currency arrangement means that:

a. currency relationships are under the control of the central bank.

b. allied nations' currencies will move in opposition, creating a balance.

c. the currency will move with its peg.

d. monetary authorities will approve any movement, the peg is national.

Answer 1

A fixed peg currency arrangement is a hard peg policy where a central bank sets and maintains a fixed exchange rate for its currency, actively intervening to ensure the exchange rate's stability.

Step-by-step explanation:

A fixed peg currency arrangement means that the currency will move with its peg, essentially stating that the currency's exchange rate is set at a fixed and unchanging value by the central bank. This type of arrangement is known as a hard peg policy in foreign exchange markets. Unlike a soft peg, where the central bank may allow some market-determined movements and intervene when necessary to control rapid fluctuations, a hard peg aims to maintain a consistent exchange rate regardless of market pressures. Hence, the central bank actively intervenes to ensure that the fixed exchange rate is sustained, preventing the currency from moving freely in response to market forces.