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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