Which of the following is NOT true of a fixed exchange rate

Which of the following is NOT true of a fixed exchange rate system?

1. Foreign exchange reserves are costly.

2.It is good for business.

3.It makes pursuing domestic macroeconomic objectives easier.

4.It keeps a country from using inflationary policies.

Solution

Solution-

The correct option is B. It is good for business.

Reason-

If there is currency tension and falling - the most effective way to increase the value of the currency is by increasing interest rates.Hence,it is not good for business.