International variables are linked through trade and financial flows. Therefore, what trilemma is faced by a nation that wishes to keep its exchange rates with other nations fixed?
a. It can have fixed exchange rates only when it allows free flows of capital and maintains control of its interest rates.
b. It cannot have fixed exchange rates if it does not restrict foreign investment and also wants to control its own monetary policy.
c. Fixed exchange rates are not possible if the nation allows free flows of capital both into and out of the nation.
d. Fixed exchange rates are not possible if the nation also wants to control its monetary policy.
Ans: b. It cannot have fixed exchange rates if it does not restrict foreign investment and also wants to control its own monetary policy.
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