Consider That Britain Is Trying to Maintain a Fixed Exchange

question 4

Multiple Choice

Consider that Britain is trying to maintain a fixed exchange rate with respect to the U.S. dollar. However, the present situation in the foreign exchange market is conducive for the British pound to depreciate with respect to the U.S. dollar. Which of the following interventions will stem the pressures for depreciation of the pound?

• A)The government of Britain should sell pounds and buy dollars.
• B)The government of Britain should do nothing as a fixed rate will not change.
• C)The government of Britain should buy pounds and sell dollars.
• D)The government of Britain should increase the country's money supply.

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Definitions:

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