Consider That Britain Is Trying to Maintain a Fixed Exchange

question 50

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. The British government can only intervene in the foreign exchange market for a limited period of time because:

• A)the British government will eventually run out of pounds.
• B)the British inflation rate will eventually rise so much that the government will give up their defense of the pegged rate.
• C)the British government will end up with too many dollars in their central bank.
• D)the British government will run out of official international reserves.

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Definitions:

Dividend Policy

A company's approach to distributing profits back to its shareholders either in the form of cash payments or shares of stock.

Firm Value

The total value of a company, determined by its assets, earnings, cash flow, and market perception.

Market Imperfections

Occur when conditions for perfect market competition are not met, leading to inefficiencies such as monopolies or information asymmetries.

Stock Dividend

A dividend payment made in the form of additional shares rather than a cash payout, to shareholders.