Assume That the Fed Intervenes by Exchanging Dollars for Euros

question 20

Multiple Choice

Assume that the Fed intervenes by exchanging dollars for euros in the foreign exchange market. This will cause an ____ U.S. dollars and an ____ euros.

• A) inward shift in demand for; outward shift in supply of
• B) inward shift in demand for; inward shift in supply of
• C) outward shift in supply of; outward shift in demand for
• D) outward shift in supply of; inward shift in demand for

---

Definitions:

Inflation

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Effective Interest Rate

The actual annual interest rate that an investor earns or pays, taking into account the effect of compounding over the period.

GICs

Guaranteed Investment Certificates, a secure investment that guarantees to preserve the principal amount while offering a fixed interest rate over a specified period.

Compounded Semiannually

A method of computing interest where the interest is added to the principal twice a year, leading to interest being earned on interest from the next period.