International capital-flow shocks to an economy with fixed exchange rates necessitates:
A)an offsetting fiscal policy.
B)devaluation or revaluation of the domestic currency.
C)international borrowing by the domestic government.
D)intervention in the foreign exchange market by the domestic monetary authorities.

Question

Quizplus · Accepted Answer

In a fixed exchange rate system, the domestic monetary authorities intervene in the foreign exchange market to maintain the currency's value against another currency or a basket of currencies.

International Capital-Flow Shocks to an Economy with Fixed Exchange Rates