If the Bank of Canada Announces That It Will Fix

question 81

Multiple Choice

If the Bank of Canada announces that it will fix the exchange rate at 100 yen per Canadian dollar, but with the current money supply the equilibrium exchange rate is 150 yen per dollar, then:

• A)arbitrageurs will sell yen in the marketplace.
• B)arbitrageurs will buy yen from the Bank of Canada.
• C)the money supply will fall until the market exchange rate is 100 yen per dollar.
• D)the money supply will rise until the market exchange rate is 100 yen per dollar.

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Definitions:

Transmission

The act or process of transferring something from one place, person, or thing to another, often used in the context of diseases or information.

HIV

Human Immunodeficiency Virus, a virus that attacks the immune system and can lead to AIDS if not treated.

Postdecision Dissonance

In the theory of cognitive dissonance, tension that occurs when you believe you may have made a bad decision.

Tension

A state of mental or emotional strain, stress, or conflict that can also refer to the physical stretching of an object or material.