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Explain the mechanism by which a central bank would keep the exchange value of its currency, (R), fixed (pegged). What is the interest parity relationship

  • Explain the mechanism by which a central bank would keep the exchange value of its currency, (R), fixed (pegged).
  • What is the interest parity relationship under fixed exchange rate?
  • Discuss why monetary policy is completely ineffective in a country such as Hong Kong whose currency (HK$) is fixed against the USD ($) and its capital is perfectly mobile.

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