Which of the Following Statements Regarding the Floating Exchange Rate

question 47

Multiple Choice

Which of the following statements regarding the floating exchange rate regime adopted by Australia in December 1983 is incorrect?

• A) When the Reserve Bank sells foreign exchange, its intention may be to depress the price of the foreign currency and support the AUD.
• B) Increased demand for the AUD by foreign investors will lead to an appreciation of the AUD and therefore an increase in the domestic money supply.
• C) When the Reserve Bank buys foreign currency, the intervention may be aimed at pushing up the price of foreign currency, resulting in a depreciation of the AUD.
• D) A balance of payments surplus would lead to an appreciation of the AUD and a reduction in the quantity of foreign currency supplied to the market.