Under a ﬁxed exchange rate regime, the central bank can support the exchange rate as long as it has an adequate supply of foreign currency reserves.

Question

Quizplus · Accepted Answer

In a fixed exchange rate regime, the central bank is committed to maintaining a certain exchange rate, and it can do so by buying or selling its own currency in exchange for foreign currency reserves. As long as the central bank has enough foreign currency reserves to support its currency, it can maintain the fixed exchange rate.

Under a ﬁXed Exchange Rate Regime, the Central Bank Can