Should emerging economies follow a pegged exchange rate system? What are the pros and cons of a pegged exchange rate system? Can any country be on a pegged exchange rate system?
1. Describe the benefits and drawback dollarization. Do you think smaller countries should adopt dollarization?
2. Suppose $1 = ¥125. The U.S. inflation rate is 2% and Japanese inflation rate is 4%. The exchange rate is fixed. What happens to the competitiveness of Japanese companies versus United States? Explain clearly.