To Counteract the Depreciation of the National Currency Against the U.S

question 45

Multiple Choice

To counteract the depreciation of the 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 a 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:

Unemployment Rate

The rate of job seekers in the labor market who are not currently employed.

Soviet Union

A former federation of communist states in Eastern Europe and Asia, existing from 1922 to 1991, known officially as the Union of Soviet Socialist Republics (USSR).

World War II

World War II was a global conflict that lasted from 1939 to 1945, involving most of the world's nations and resulting in significant changes in the political and social order.

Institutional Constraint

Restrictions and limits imposed by laws, regulations, and social norms that affect the decisions and actions of individuals and organizations.