Which Method Would the Central Bank NOT Use to Keep

question 45

Multiple Choice

Which method would the central bank NOT use to keep the exchange value of its currency fixed?

• A) It would purchase its own currency for foreign reserves when the domestic credit expanded.
• B) It would ensure that the domestic money supply remained constant.
• C) It would sell its own currency for foreign reserves when domestic credit contracted.
• D) It would ensure that the domestic money supply increased to maintain uncovered interest and PPP.

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Definitions:

Quarterly Dividend

A dividend payment made to shareholders four times a year, each quarter.

Annually Compounded

Interest on an investment or loan calculated once a year and added to the principal sum for calculating future interest.

Quarterly Payment

Payments made every three months in a year, often used for loans, subscriptions, or service contracts.

Preferred Share

A class of ownership in a corporation that has a higher claim on its assets and earnings than common shares, typically with fixed dividends.