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Suppose we have a world of three countries, Home, Foreign 1, and Foreign 2. The exchange rate between the currencies of Foreign 1 and Foreign
Suppose we have a world of three countries, Home, Foreign 1, and Foreign 2. The exchange rate between the currencies of Foreign 1 and Foreign 2 floats. One day your chief economic adviser (you are the president of Home) suggests it would be a good idea to fix your currency's exchange rates against both the Foreign 1 and Foreign 2 currencies. Why should you fire your adviser immediately?
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