Central Banks Control Exchange Rates by Intervention

question 57

Multiple Choice

Central banks control exchange rates by intervention. If a nation such as Japan wished to peg its market rate at a certain level, such as ¥100 = $1, what should it do if the actual market rate begins to depreciate to ¥125 = $1?

• A) It should purchase dollars with its own currency.
• B) It should sell dollars from its treasury and retire its own currency.
• C) It should increase its GDP to increase exports.
• D) It should petition the IMF for a rate change.

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