The Fed in the U.S.
A) allows a flexible exchange rate, though their actions can impact the exchange rate.
B) has no influence on the exchange rate.
C) sells U.S. dollars to China in an attempt to depreciate the U.S. dollar.
D) alternates between a flexible, fixed, and crawling peg exchange rate policy depending on economic conditions.

Question

Quizplus · Accepted Answer

The Federal Reserve (Fed) does not directly set exchange rates, as these are determined by the forex market. However, its monetary policy actions, such as setting interest rates, can influence the value of the U.S. dollar indirectly by affecting investment flows and economic conditions, thereby impacting the exchange rate.