Suppose a Central Bank Tries to Keep Exchange Rates Fixed

question 59

Multiple Choice

Suppose a central bank tries to keep exchange rates fixed. When there is an increase in the demand for foreign goods, the central bank will most likely

• A) buy foreign currency in exchange for the domestic currency.
• B) do nothing.
• C) sell the domestic currency in exchange for foreign reserves.
• D) use foreign reserves to buy the domestic currency.

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