Consider that Britain is trying to maintain a fixed exchange rate with respect to the U.S. dollar. However, the present situation in the foreign exchange market is conducive for the British pound to depreciate with respect to the U.S. dollar. Which of the following interventions will stem the pressures for depreciation of the pound?

Question

Quizplus · Accepted Answer

To stem the pressures for depreciation of the pound, the government of Britain should buy pounds and sell dollars. This action increases the demand for pounds and decreases the supply of pounds in the foreign exchange market, thereby supporting or potentially increasing its value against the dollar.

Consider That Britain Is Trying to Maintain a Fixed Exchange