What Must a Nation's Central Bank Do to Maintain a Fixed

question 46

Multiple Choice

What must a nation's central bank do to maintain a fixed exchange rate?

• A) achieve a balanced budget
• B) keep the level of foreign reserves above zero so that it can prevent a fall in value of its currency
• C) keep the level of foreign reserves at zero
• D) hold only foreign government bonds to back the currency 100%

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Definitions:

Preferred Stock

Preferred stock is a type of stock that gives its holders priority over common stockholders in terms of dividend payouts and claims on assets in the event of a liquidation.

Treasury Stock

Refers to shares that were once part of the outstanding shares but were bought back by the company. Now, these shares are held in the company's treasury.

Treasury Stock

Treasury stock refers to shares that were issued and later reacquired by the issuing corporation, not considered while calculating earnings per share or dividends.

Stated Value

The value assigned to no-par value stock by the company's board of directors, which becomes the legal capital per share that must be retained in the business.