Consider That Britain Is Trying to Maintain a Fixed Exchange

question 44

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. A fully sterilized intervention in the foreign exchange market by the British government is expected to cause:

• A)the British money supply to fall.
• B)the British money supply to rise.
• C)the British money supply to remain unchanged.
• D)Britain to gain official international reserves.