Suppose an Economy Is Operating Under a fiXed Exchange Rate

question 89

Multiple Choice

Suppose an economy is operating under a fixed exchange rate regime. If the central bank increases interest rates:

• A) there will be an inflow of the domestic currency into the forex market.
• B) domestic financial capital will flow out of the country.
• C) the supply of money in the economy will fall.
• D) there will be an excess demand for the domestic currency in the forex market.

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Definitions:

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations, calculated by dividing current assets by current liabilities.

Asset Turnover Ratio

A financial metric that measures how efficiently a company uses its assets to generate sales revenue.

Receivables Turnover Ratio

A financial ratio indicating how efficiently a company collects on its accounts receivable, calculated as net credit sales divided by average accounts receivable.

Gross Accounts Receivable

The total amount of money owed to a company by its customers for goods or services delivered but not yet paid for, before any deductions for returns or bad debts.