If the Fed Announced It Would Fix the Exchange Rate

question 25

Multiple Choice

If the Fed announced it would fix the exchange rate at 100 yen per dollar, but with the current money supply the equilibrium exchange rate was 150 yen per dollar, then:

• A) arbitrageurs would sell yen in the marketplace.
• B) arbitrageurs would buy yen from the Fed.
• C) the money supply would fall until the market exchange rate was 100 yen per dollar.
• D) the money supply would rise until the market exchange rate was 100 yen per dollar.

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Definitions:

Simple Interest

The calculation of interest that is based only on the original principal amount and does not include interest on interest.

Market Values

Refers to the current price at which an asset, security, or commodity can be bought or sold in the marketplace.

Promissory Note

A Promissory Note is a financial instrument that contains a written promise by one party to pay another party a definite sum of money, either on demand or at a specified future date.

Promissory Note

Definition: A financial instrument that contains a written promise by one party to pay another party a definite sum of money either on demand or at a specified future date.