Assume That the Dollar Has Been Consistently Depreciating Over a Long

question 56

Multiple Choice

Assume that the dollar has been consistently depreciating over a long period. The Fed decides to counteract this movement by intervening in the foreign exchange market using sterilized intervention. The Fed would:

• A) buy dollars with foreign currency and simultaneously sell Treasury securities for dollars.
• B) buy dollars with foreign currency and simultaneously buy Treasury securities with dollars.
• C) sell dollars for foreign currency and simultaneously sell Treasury securities for dollars.
• D) sell dollars for foreign currency and simultaneously buy Treasury securities with dollars.
• E) None of these are correct.

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Definitions:

Collusive Agreements

Refers to arrangements between firms to limit competition, fix prices, or divide markets among themselves, often leading to higher prices for consumers.

Dominant Firm

A company with a major share of market sales, which has the power to influence market conditions and pricing.

Nash Equilibrium

A concept in game theory where no player can benefit by changing strategies while the other players keep theirs unchanged, leading to a stable state of the game.

Payoff Matrix

A table that shows the potential outcomes of different strategies in a game or decision-making situation for all involved players.