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You have been hired as a consultant to the central bank for a country that has for many years suffered from repeated currency crises and depends heavily on the U.S. financial and product markets. Which of the following policies would have the greatest effectiveness for reducing currency volatility of the client country with the United States? an exchange rate pegged to the U.S. dollar an internationally floating exchange rate an exchange rate with a fixed price per ounce of gold dollarization

Respuesta :

Answer: dollarization

Explanation:

Of the following policies given in the question, the one that would have the greatest effectiveness for reducing currency volatility of the client country with the United States is dollarization.

Dollarization occurs when a country recognizes the dollar as a legal tender or medium of exchange in place of the domestic currency of a particular country.

It should be noted that dollarization occurs due to instability of the local currency which has resulted into its loss of usefulness to function well as a medium of exchange.

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