fixed exchange rate regime and central bank

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Economics

Description

      Assume the prevailing exchange rate in a fixed exchange rate regime is fixed above equilibrium (undervalued).  Explain the steps the central bank of the country is taking to make this a possible scenario.

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Explanation & Answer

the central bank fixes the exchange rates above the equilibrium, in order to regulate the stability of the currency according to the ration to which it is pegged.it also prevents the government from using monetary policies inorder to achieve monetary stability


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