If the U.S. government enters the foreign exchange market and purchases dollars to maintain a specific exchange rate with the yen, the dollar will ________ and the yen will ________.

Question

Quizplus · Accepted Answer

When the U.S. government purchases dollars to maintain a specific exchange rate with the yen, it increases the demand for dollars, causing the value of the dollar to appreciate. At the same time, the supply of yen increases, causing the value of yen to depreciate. Therefore, the correct answer is C, which states that the dollar will appreciate and the yen will depreciate.

If the US Government Enters the Foreign Exchange Market and Purchases Dollars