If the exchange rate is higher than the Fed's target exchange rate, the Fed would

Question

Quizplus · Accepted Answer

If the exchange rate is higher than the Fed's target exchange rate, it means that the value of the dollar is too high. In order to bring down the value of the dollar and achieve the target exchange rate, the Fed would need to sell dollars in the foreign exchange market. This action would increase the supply of dollars in the market, which would decrease the value of the dollar relative to other currencies. Therefore, C is the best choice. A and B are not relevant in this scenario as they are related to different concepts. Buying dollars (D) would further increase the value of the dollar, which is the opposite of what needs to be done.

If the Exchange Rate Is Higher Than the Fed's Target