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A Country Wants to Maintain a Fixed Exchange Rate with the Dollar

Question 211

Multiple Choice

A country wants to maintain a fixed exchange rate with the dollar, but at the current exchange rate its currency is in excess. Which policy can the country NOT adopt to maintain its exchange rate?


A) Buy domestic currency and sell U.S. dollars in the foreign exchange market.
B) Sell domestic currency and buy U.S. dollars in the foreign exchange market.
C) Impose foreign exchange controls.
D) Contract the money supply to raise domestic interest rates.

Correct Answer:

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