In the face of a balance-of-payments deficit,a country may maintain its exchange rate at a fixed level by
A) buying gold.
B) buying its own currency on foreign exchanges.
C) encouraging imports.
D) spending more abroad.
E) doing nothing; its exchange rate automatically adjusts by supply and demand.

Question

Quizplus · Accepted Answer

To maintain its exchange rate at a fixed level in the face of a balance-of-payments deficit, a country can buy its own currency on foreign exchanges. This action increases demand for the currency, helping to support or raise its value, which is a direct intervention to maintain the fixed exchange rate.

In the Face of a Balance-Of-Payments Deficit,a Country May Maintain