a) Briefly discuss the potential benefits and risks of a pegged currency system? Using the exchange rate regimes of the UK (floating) and China (pegged), discuss the pros and cons of floating v pegged currency regimes.

b) The purchasing power parity (PPP), interest rate parity (IRP) and international Fisher effect (IFE) are three parity conditions often encountered in the literature. Briefly discuss the implications of these parity conditions and show the interrelationship between them.

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a Potential Benefits of a Pegged Currency System Stability Pegging a currency to another typically a stronger or more stable currency can provide stability in exchange rates which can be beneficial fo... View the full answer