- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 7. Capital Flows and the FX Market
- Subject 2. Exchange Rate Regimes
CFA Practice Question
The main reason for dollarization is ______
A. to improve the credit-worthiness of the central bank.
B. greater stability in the value of the foreign currency over the domestic currency.
C. to follow the foreign country's monetary policy.
Explanation: The downside is that the country gives up its right to influence its own monetary policy by adjusting the money supply.
User Contributed Comments 1
| User | Comment |
|---|---|
| kritan | remember: dollarization is not the REPLACEMENT of the domestic currency with dollars, but the use of it in PARALLEL with the domestic currency. |