Assume That China and the U

question 12

Multiple Choice

Assume that China and the U.S.are in a managed floating exchange rate agreement.Suppose that the Fed decreases the money supply by 50%.China's central bank lets the exchange rate partly adjust and also intervenes in foreign exchange market.What would happen to the foreign reserve position for the U.S.and the exchange rate $/yuan?

• A) Foreign reserves decrease and exchange rate decreases.
• B) Foreign reserves increases and exchange rate increases.
• C) Foreign reserves decrease and exchange rate increases.
• D) Foreign reserves increase and exchange rate decreases.

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Definitions:

Service Department

A segment within a business that supports other departments by providing internal services or activities.

Fixed Costs

Expenses that do not vary in total despite fluctuations in the amount of work or volume of production.

Actual Services

The genuine and realized services provided by a company, as opposed to planned or expected services.

Operating Department

A unit or division within an organization that is directly involved in performing the primary business activities of the company.