Albania wants to maintain an exchange rate of $0.20 per lek.However, the market for lek per U.S.dollar has determined an exchange rate of $0.14 per lek (depreciation of the lek against the U.S.dollar).The Croatian central bank decides to increase the domestic interest rates through a contractionary monetary policy.This would shift the:
A)supply of lek to the left and cause the lek to lose value.
B)supply of lek to the right and cause the lek to lose value.
C)demand of lek to the right and cause the lek to gain value.
D)demand of lek to the left and cause the lek to lose value.

Question

Quizplus · Accepted Answer

Increasing domestic interest rates would attract foreign capital, increasing demand for the lek and causing it to gain value.

Albania Wants to Maintain an Exchange Rate of $0