Suppose the Target Exchange Rate Set by the Reserve Bank

question 63

Multiple Choice

Suppose the target exchange rate set by the Reserve Bank is 150 yen per dollar. If the demand for dollars permanently decreases, the Reserve Bank

• A)cannot permanently maintain the target rate.
• B)must violate both interest rate parity and purchasing power parity to permanently meet the target.
• C)can permanently meet the target by selling dollars.
• D)can permanently meet the target by buying dollars.

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Definitions:

Capital Budgeting

A process businesses use to evaluate and select major investment projects, considering their potential for future profits.

Income Tax Expense

The cost incurred by businesses and individuals related to the taxes on their income, reflecting the amount of income tax that a company is obligated to pay to tax authorities.

Incremental Net Cash

The difference in net cash flows between two alternatives, emphasizing the additional cash brought in by a certain decision.

Tax Rate

The percentage at which an individual or corporation is taxed.