Under a fiXed Exchange Rate Regime, Which of the Following

question 26

Multiple Choice

Under a fixed exchange rate regime, which of the following statements will be true?

• A) The central bank has an infinite reserve of foreign currencies to use to maintain the value of the exchange rate.
• B) There is a limit to the amount of domestic currency that the central bank can purchase to
• C) Since the exchange rate is fixed, the currency is not open to a speculative attack.
• D) The government and the central bank do not intervene in the foreign exchange market.

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Definitions:

Destroyed Money

The process of physically eliminating money from circulation, typically by central banks, to manage a currency's supply.

Check Clearing

The process by which banks settle transactions by transferring money from the check writer's account to the recipient's account.

Federal Funds Rate

The interest rate at which banks lend reserve balances to other banks overnight, on an uncollateralized basis.

Discount Rate

The interest rate charged by central banks for short-term loans to commercial banks.