Suppose Two Countries Make a Credible Commitment to Fix Their

Multiple Choice

Suppose two countries make a credible commitment to fix their bilateral exchange rate. In such a situation, we know that:

A) the interest rate in the two countries must be equal.
B) the uncovered interest parity condition no longer holds.
C) the real exchange rate must be constant as well.
D) neither country will run a trade deficit.
E) each country can freely allow its interest rate to diverge from that of the other country.