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. If the British government intervenes in the foreign exchange market, then it can be inferred that:

Question

Quizplus · Accepted Answer

To maintain a fixed exchange rate and prevent the pound from depreciating, the British government would need to buy pounds and sell foreign currency (in this case, U.S. dollars), which is an action taken to finance a deficit in its overall balance of payments.

Consider That Britain Is Trying to Maintain a Fixed Exchange