If the U.S. government wants to increase the price of the dollar relative to the euro, it could buy euros with dollars in the foreign exchange market.

Question

Quizplus · Accepted Answer

If the U.S. government wants to increase the price of the dollar relative to the euro, it would have to sell euros and buy dollars in the foreign exchange market. Selling euros increases the supply of euros in the market, thereby decreasing the value of euros relative to dollars. Buying dollars increases demand for dollars, which increases the value of dollars relative to euros.

If the US Government Wants to Increase the Price of the Dollar