To Counteract the Depreciation of National Currency Against the U

question 45

Multiple Choice

To counteract the depreciation of national currency against the U.S.dollar, the central bank of a country can intervene in the foreign exchange market.Which of the following imposes a restriction on this ability of the central banks to maintain the fixed exchange rate?

• A)The central banks have a limited amount of international reserve.
• B)The central banks have a limited amount of domestic currency.
• C)Unrestricted sale of foreign currency will cause inflation in the domestic economy.
• D)The supply of dollars is perfectly elastic in the foreign exchange market.
• E)The central banks need to maintain a certain amount of its assets in the form of gold.

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Definitions:

Residual Distribution Policy

A dividend payment policy in which dividends are based on earnings minus all planned capital investments and working capital needs.

Capital Budget

The process and plan for determining and allocating financial resources for major investments or projects within a company.

Payout Ratio

The proportion of earnings paid out as dividends to shareholders, often expressed as a percentage.

Dividend Policies

The policies and guidelines a company follows in deciding how much of its earnings it will pay out to shareholders as dividends.