Suppose the Fed Had Tried to Keep the Exchange Rate

question 250

Multiple Choice

Suppose the Fed had tried to keep the exchange rate at its 2001 level.In that case the Fed would have ________ dollars and its foreign reserves would have ________.

• A) bought; decreased
• B) sold; decreased
• C) bought; increased
• D) sold; increased
• E) None of the above are correct because the Fed cannot affect the exchange rate.

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Definitions:

Euro

The Euro is the official currency of 19 out of the 27 European Union countries, known collectively as the Eurozone.

U.S. Dollars

The official currency of the United States, used as a standard monetary unit for international transactions and reserves.

Ad Valorem Duty

A type of tax calculated based on the value of the goods, services, or property.

German Firm

A business or company that is registered, headquartered, or primarily operates within Germany.