The Demand for the Franconian Franc in the Foreign Exchange

question 149

Multiple Choice

The demand for the Franconian franc in the foreign exchange market equals 14,000 - 3,000e and the supply of francs in the foreign exchange market equals 2,000 + 2,000e, where e is the nominal exchange rate expressed in U.S. dollars per franc. If the franc is fixed at 3 U.S. dollars per franc, then to maintain this fixed rate Franconia's international reserves must:

• A)decrease by 9,000 francs per period.
• B)increase by 9,000 francs per period.
• C)decrease by 3,000 francs per period.
• D)increase by 3,000 francs per period.

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