The Main Difficulty with a Fixed or Pegged Exchange Rate

Multiple Choice

The main difficulty with a fixed or pegged exchange rate regime is that the:

A) government finds it difficult to conduct fiscal policy as it cannot always be certain of the central bank's intervention in foreign exchange markets.
B) central bank must always sterilise foreign exchange market interventions.
C) central bank loses the power to conduct independent domestic monetary policy.
D) central bank will run out of official reserves of foreign exchange.