Describe pressures that currency would face

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Reference no: EM1369406

Q. Suppose you are a member of monetary policy committee of a small open economy, dependent on oil imports, which also wants to maintain a currency peg to dollar. (a) Describe pressures that currency would face due to increasing oil prices? (Hint: think about effects of higher oil prices on domestic price level as well as current account). In order to maintain currency peg? Will this response by central bank increase or decrease foreign reserves?

Reference no: EM1369406

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