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 uses sterilized intervention in the foreign exchange market, then:
A) Britain is gaining official international reserves.
B) Britain will be running a surplus.
C) the British monetary authorities will be selling British government bonds.
D) the British monetary authorities will be buying British government bonds.
Correct Answer:
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