In a fixed exchange rate system, a central bank typically sells foreign currency reserves when it wants to
Correct answer: A. Prevent its currency from depreciating below the fixed rate
- A. Prevent its currency from depreciating below the fixed rate
- B. Prevent its currency from appreciating above the fixed rate
- C. Increase imports through cheaper foreign currency
- D. Reduce the domestic value of foreign reserves
Explanation
Selling foreign currency and buying domestic currency increases demand for the domestic currency. This helps support its value when market pressure would otherwise push it below the official fixed rate.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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