If the Bank of Canada sets a target exchange rate that is higher than the current exchange rate,then
A)the Bank must sell dollars.
B)the Bank must buy dollars.
C)the Bank can do nothing in the short run.
D)will print more dollars for foreign distribution.
E)None of the above.

Question

Quizplus · Accepted Answer

If the Bank of Canada sets a target exchange rate that is higher than the current exchange rate, it means that they want to appreciate the value of the Canadian dollar relative to other currencies. To achieve this, the Bank must buy Canadian dollars on the foreign exchange market, increasing the demand for Canadian dollars and driving up its value.

If the Bank of Canada Sets a Target Exchange Rate