Refer to the Graph Above, Which Shows the Supply and Demand

question 55

Multiple Choice

Refer to the graph above, which shows the supply and demand for British pounds. D₁ and S₁ represent the initial demand and supply curves. If the supply of British pounds in the foreign exchange market shifts to S₃, and the British government wanted to fix the exchange rate at its initial level, then it should:

• A) Sell U.S. dollars out of its reserves
• B) Buy U.S. dollars to add to its reserves
• C) Sell British pounds in the foreign exchange market
• D) Buy British bonds in the open market

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Definitions:

Specific Customers

This refers to identified individual or business customers with unique needs or characteristics that a company targets or serves.

Direct Write-off Method

An accounting method where uncollectible debts are written off as an expense only when they are confirmed to be uncollectible.

Materiality Constraint

An accounting principle that allows for ignoring minor discrepancies that would not affect the decision-making process of users of financial statements.

Uncollectible Account Receivable

An accounting term for receivables from sales that are considered not collectible, resulting in a bad debt expense.