Which term describes a currency pegged to another currency?

• A. Pegged currency
• B. Common Market
• C. Private international law
• D. Democratic rule

Answer: (A)

A currency pegged to another currency describes a fixed exchange-rate arrangement. When a country pegs its currency, it commits to maintaining its value at a set rate relative to the anchor currency. The central bank intervenes in foreign exchange markets, using reserves to buy or sell its own currency to defend that level. This setup can stabilize trade and investment by reducing exchange-rate risk and can help control inflation by linking to a stable anchor. However, it also limits the country’s monetary policy autonomy; if conditions shift or the anchor currency moves, the pegged country may have to adjust through reserves, devalue, or endure misalignment. The other options refer to different concepts altogether: a common market is about regional trade integration, private international law deals with cross-border legal issues, and democratic rule describes a form of government.