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.

Question

Quizplus · Accepted Answer

The Answer of 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.

If the Fed Announced It Would Fix the Exchange Rate