If the Japanese government enters the foreign exchange market and purchases yen to maintain a specific exchange rate with the dollar, the dollar will ________ and the yen will ________.

Question

Quizplus · Accepted Answer

When the Japanese government buys yen, it increases the demand for yen, leading to an appreciation of the yen. Conversely, selling dollars to buy yen increases the supply of dollars, leading to a depreciation of the dollar.

If the Japanese Government Enters the Foreign Exchange Market and Purchases