QUESTION THREE [15 Marks] (a). Kenya is having a trade deficit and the IMF now wants the country to devalue. It is assumed that the monetary authority has some control over the exchange rate. Typically, it is under an adjustable peg, a crawling peg, a currency basket and a substantially managed float. (Aware of the argument that if the currency is freely floating under capital mobility, the exchange rate is not a policy variable and the central bank cannot devalue it at will). Why would you prefer variable to non-variable exchange rate regime? Explain. [6 Marks] (b). Discuss the limitations of the theory of comparative advantage with regards to cross border economic transactions [5 Marks] (c). What drawbacks would a country which is a member of East African Community (EAC) experience in their trading transactions? [4 Marks]