With Pegged Exchange Rates, in the Case of Fiscal Dominance

Multiple Choice

With pegged exchange rates, in the case of fiscal dominance, if investors are unaware of pending problems as the central bank continuously monetizes government bonds, then at some point:

A) the IMF will step in and take over management of the currency.
B) the nation will reverse course and begin accumulating foreign currency reserves.
C) reserves will run out, the money supply and inflation will rise, and after that point the fixed exchange rate cannot be sustained.
D) the government will be forced to give up control of the central bank.