Suppose the Bank of Canada Follows a Fixed Exchange Rate

question 55

Multiple Choice

Suppose the Bank of Canada follows a fixed exchange rate of $1 U.S.per Canadian dollar.If the demand for Canadian dollars temporarily increases, to maintain the target exchange rate, the Bank can

• A)sell Canadian dollars.
• B)violate purchasing power parity.
• C)buy Canadian dollars.
• D)violate interest rate parity.
• E)enforce interest rate parity.