Suppose Foreign Exchange Markets Anticipate a Devaluation for Country A Assume

question 48

Multiple Choice

Suppose foreign exchange markets anticipate a devaluation for country A.Further assume that policy makers in country A will continue to fix its nominal exchange rate.In order to peg the currency at its original level,which of the following must occur?

• A)increase the domestic interest rate
• B)increase the domestic price level
• C)convince trading partners to raise their interest rates
• D)all of the above
• E) none of the above