How would a target zone system or a pegged exchange rate system that h

How would a target zone system or a pegged exchange rate system that has been in place mask the true currency risk?

What will be an ideal response?

ANSWER

Answer: If the peg or target zone holds for a long time, historical volatility appears to be zero or very limited, but this may not accurately reflect underlying tensions that may ultimately result in a devaluation or revaluation of the currency. Hence, the true currency risk does not show up in day-to-day fluctuations of the exchange rate.