Under a Fixed Exchange Rate System, the Central Bank of a Country

question 28

Multiple Choice

Under a fixed exchange rate system, the central bank of a country experiencing a balance of payments deficit will:

• A) increase the supply of dollars to prevent currency depreciation.
• B) increase the demand for dollars to prevent currency depreciation.
• C) increase the supply of dollars to prevent a currency appreciation.
• D) increase the demand for dollars to prevent a currency appreciation.

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Definitions:

Net Income

What a company ultimately earns in profit after removing the costs of taxes and expenses from its revenue.

Stockholders' Equity

The ownership interest of shareholders in a corporation, measured as the company's total assets minus its total liabilities.

Dividends In Arrears

Outstanding dividends on cumulative preference shares that have not been paid by the company in the time stipulated.

Common Stock

A type of security that represents ownership in a corporation, giving holders voting rights and entitlement to dividends.