Assume That the Fed Performs a Foreign Exchange Intervention in Which

question 55

Multiple Choice

Assume that the Fed performs a foreign exchange intervention in which it does nothing except buy German government bonds.The dollar will depreciate as a result due to:

• A)A decrease in the demand for dollars, but no change in the supply of dollars
• B)An increase in the supply of dollars, but no change in the demand for dollars
• C)Both a decrease in the demand for dollars and an increase in the supply of dollars
• D)Both an increase in the demand for dollars and a decrease in the supply of dollars

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Definitions:

Discount on Bonds Payable

The difference between a bond's face value and its selling price when it is sold for less than its face value.

Contra Liability

An account that offsets a liability account on a company's balance sheet, such as discounts on bonds payable, which reduce the total amount of bonds payable.

Liability

An obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services, or other yielding of economic benefits in the future.

Par Value

The face value of a bond or stock as stated by the issuing company.