Use the Following to Answer Questions

question 47

Multiple Choice

Use the following to answer questions .
Exhibit: A Fixed Exchange Rate
-(Exhibit: A Fixed Exchange Rate) Suppose the exchange rate between the dollar and the British pound is fixed at £0.3 per dollar. Now suppose U.S. residents choose to purchase more British goods and services. Under the terms of the Bretton Woods Agreement, what must happen to bring the exchange rate back to £0.3 per dollar?

• A) Either the Fed or the Bank of England (Britain's central bank) will be required to increase the demand for dollars by purchasing dollars.
• B) Either the Fed or the Bank of England (Britain's central bank) will be required to decrease the supply of dollars by purchasing dollars.
• C) Either the Fed or the Bank of England (Britain's central bank) will be required to decrease the demand for dollars by purchasing British pounds.
• D) Either the Fed or the Bank of England (Britain's central bank) will be required to increase the supply of dollars by purchasing British pounds.

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Definitions:

Book Balance

The amount of money on the books or recorded in the financial statements, differing from the actual cash balance due to outstanding checks or deposits in transit.

Zero-balance Account

A type of bank account that maintains a balance of zero, with funds being transferred into it to cover checks written or transactions made.

Master Account

An overarching account that holds multiple sub-accounts, often used by businesses to manage various funds or investments.

Demands for Payment

Requests or invoices issued by creditors or suppliers for the settlement of outstanding debts.