Assume that there is an excess supply of euros in the foreign exchange market. If a fixed exchange rate system exists with the United States, the European Central Bank would have to __________ to prevent the euro from __________.
A) buy excess euros; appreciating
B) buy excess euros; depreciating
C) sell euros; appreciating
D) sell euros; depreciating

Question

Quizplus · Accepted Answer

In a fixed exchange rate system, if there is an excess supply of euros, it means that the value of the euro is under downward pressure and could depreciate. To prevent this depreciation and maintain the fixed exchange rate, the European Central Bank would need to buy the excess euros, thereby reducing the supply of euros in the market and supporting its value.

Assume That There Is an Excess Supply of Euros in the Foreign