The figure below shows the demand (D) and supply (S) curves of cocoa in the U.S.Figure 21.4

-Foreign exchange market intervention is most effective when:
A)each country's political leaders agree to cooperate fully with the process.
B)leading economists in each country believe that intervention is needed.
C)permanent differences between the free market exchange rate and the fixed exchange rate are expected.
D)temporary differences between the free market exchange rate and the fixed exchange rate are expected.
E)all the countries restrict the international movement of goods and services.

Question

The figure below shows the demand (D) and supply (S) curves of cocoa in the U.S.Figure 21.4
 
-Foreign exchange market intervention is most effective when:
A)each country's political leaders agree to cooperate fully with the process. 
B)leading economists in each country believe that intervention is needed. 
C)permanent differences between the free market exchange rate and the fixed exchange rate are expected. 
D)temporary differences between the free market exchange rate and the fixed exchange rate are expected. 
E)all the countries restrict the international movement of goods and services.

Quizplus · Accepted Answer

Foreign exchange market intervention is most effective when temporary differences between the free market exchange rate and the fixed exchange rate are expected. This is because intervention can help stabilize the exchange rate and prevent large fluctuations. However, if there are permanent differences between the two rates, intervention may not be sufficient to maintain the fixed rate in the long term. Additionally, the other choices (A, B, C, and E) are not necessarily related to the effectiveness of foreign exchange market intervention.

The Figure Below Shows the Demand (D) and Supply (S)