Suppose the Target Exchange Rate Set by the Fed Is

question 161

Multiple Choice

Suppose the target exchange rate set by the Fed is 150 yen per dollar. If the demand for dollars permanently decreases, then the Fed

• A) can permanently meet the target by selling dollars.
• B) can permanently meet the target by buying dollars.
• C) must violate both interest rate parity and purchasing power parity to permanently meet the target.
• D) cannot permanently maintain the target rate.

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Definitions:

Rising prices

A situation in an economy where the general level of prices for goods and services is increasing over a period of time.

Inventory method

A system used by companies to keep track of the quantity and cost of inventory on hand and sold, including methods like FIFO (First In, First Out) and LIFO (Last In, First Out).

Average cost method

An inventory costing method that assigns the average cost of all similar items to the cost of goods sold and to ending inventory.

Periodic system

An inventory accounting system that updates inventory balance and cost of goods sold at the end of an accounting period.