Suppose the Target Exchange Rate Set by the Fed Is

question 321

Multiple Choice

Suppose the target exchange rate set by the Fed is 150 yen per dollar.If the demand for dollars permanently decreases the Fed

• A) can permanently meet the target by selling dollars.
• B) can permanently meet the target by buying dollars.
• C) must violate both interest rate parity and purchasing power parity to permanently meet the target.
• D) cannot permanently maintain the target rate.

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Definitions:

Investment Banking

The sale of stocks and bonds for corporations.

Discount Rate

The interest rate charged to commercial banks and other financial institutions for loans received from the central bank.

Debit Card

A card that looks like a credit card but works like a check; using it results in a direct, immediate, electronic payment from the cardholder’s checking account to a merchant or third party.