If the target exchange rate of a fixed currency is below the equilibrium exchange rate, to reach the target rate, the government should sell that currency and buy foreign currencies.

Question

Quizplus · Accepted Answer

To decrease the value of a currency to reach the target exchange rate, the government can sell or increase the supply of that currency, which would decrease its value in comparison to other currencies. This would encourage people to buy foreign currencies, which would increase the demand for them and thus their value relative to the fixed currency, eventually reaching the target exchange rate.

If the Target Exchange Rate of a Fixed Currency Is