Suppose the Bank of Canada Follows a Fixed-Exchange Rate of 0.50

question 30

Multiple Choice

Suppose the Bank of Canada follows a fixed-exchange rate of 0.50 U.K. pounds per Canadian dollar. If the demand for dollars temporarily decreases, to maintain the target exchange rate, the Bank can

• A)sell dollars.
• B)buy dollars.
• C)increase Canadian exports.
• D)increase Canadian imports.
• E)violate purchasing power parity.

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Definitions:

Equipment

Items of property intended for long-term use in the operation of a business, such as machinery and furniture.

Liability Account

An account representing an obligation or amount owed by a business to others, such as loans, accounts payable, or mortgages.

Revenue Account

An account that tracks the income a company generates from its operations or activities.

Chart of Accounts

Chart of Accounts is an organized list of all accounts in a business entity’s financial statements, used for categorizing all financial transactions.