Please explain in detail. I listed some of the options that I acame acress, but I am unclear of the answer.

• Would the small country want to Hard peg its currency to either the dollar or the Euro (dollarization)? i.e. Adopt a new unit of measure?
• Would the small country want to Soft peg its currency to another currency, or basket of currencies at a fixed rate? Soft peg to Germany and France, as they are the major trading partners.

Practice # 10

You have been hired as a consultant to the central bank for a small country that, for many years, has suffered from repeated currency crises and rampant inflation.The country depends heavily on both the German and French financial and product markets. What type of exchange rate policy would have the greatest impact and reduce currency volatility between the client country and both Germany and France?