Exercise 3 In relation to the exchange rate regimes presented throughout this chapter, answer what the following items demand:

a. What factors should be considered by policymakers in the choice between a fixed exchange rate regime and a floating exchange rate regime? Explain the importance of each factor in detail.

b. Explain how a managed exchange rate regime works. Give examples. Why did this regime become popular with industrialized countries after 1973?

c. Explain how a currency board works. Why was this regime adopted by some developing economies?

d. Explain how a country can dollarize its monetary system. How is the economy of the United States affected when a country adopts dollarization? Why did some countries adopt this regime?