Figure 13.2 -Refer to Figure 13.2.In a Fixed Exchange Rate Regime,if an Rate

question 14

Multiple Choice

Figure 13.2
-Refer to Figure 13.2.In a fixed exchange rate regime,if an economy is experiencing external disequilibrium at point B,then to peg the exchange rate the central bank has to:

• A) buy domestic currency, sell foreign currency, and shift the IS to the left.
• B) buy foreign currency, sell domestic currency, and shift the LM to the right.
• C) buy domestic currency, sell foreign currency, and shift the LM to the left.
• D) buy foreign currency, sell domestic currency, and shift the IS to the right.

---

Definitions:

Capital Budgeting

The process of planning and evaluating investments in long-term assets, analyzing their expected cash flows and their impact on the company's financial future.

Bonds

Financial instruments representing a loan made by an investor to a borrower, typically corporate or governmental, where the issuer owes the holders a debt and is obliged to pay them interest and/or repay the principal at a later date, termed the maturity.

Issue Stock

This refers to the process by which a company offers new shares to investors or the public in order to raise capital.

NPV

Net Present Value, a method used in capital budgeting to evaluate the profitability of an investment or project by comparing the present value of cash inflows to the initial investment.