A country with a fixed exchange rate experiences upward pressure on the exchange rate value of its currency. The central bank chooses to intervene in the market to maintain its fixed exchange rate. How would the central bank go about intervening? If the pressures for the currency to appreciate persist, would it be difficult to maintain the fixed exchange rate? Why or why not? Would your answers differ if the country carried out sterilized intervention? Why or why not. Give an example of a country that attempted to maintain their exchange rate in the face of upward pressures on their currency value. What was the result?

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The Answer of A country with a fixed exchange rate experiences upward pressure on the exchange rate value of its currency. The central bank chooses to intervene in the market to maintain its fixed exchange rate. How would the central bank go about intervening? If the pressures for the currency to appreciate persist, would it be difficult to maintain the fixed exchange rate? Why or why not? Would your answers differ if the country carried out sterilized intervention? Why or why not. Give an example of a country that attempted to maintain their exchange rate in the face of upward pressures on their currency value. What was the result?

A Country with a Fixed Exchange Rate Experiences Upward Pressure