The Figure Given Below Depicts the Equilibrium Exchange Rate Between

question 47

Multiple Choice

The figure given below depicts the equilibrium exchange rate between the U.S dollar and the Mexican peso.
Figure 13.2

-Refer to Figure 13.2. Given a target exchange rate of MXP 11 = $1 with S1 the relevant supply curve and a decline in Mexican demand for U.S. dollars from D₁ to D₂ the Fed intervenes in the foreign exchange market by:

• A) selling Q₃ amount of pesos.
• B) selling Q₃ amount of U.S. dollars.
• C) buying (Q₂ - Q₁) amount of pesos.
• D) buying (Q₁ - Q₃) amount of U.S. dollars.
• E) buying (Q₂ - Q₃) amount of U.S dollars.

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