If the Fed sets a target exchange rate that is higher than the current exchange rate, then
A) the Fed must sell dollars.
B) the Fed must buy dollars.
C) the Fed can do nothing in the short run.
D) will try to print more dollars for foreign distribution.

Question

Quizplus · Accepted Answer

To achieve a higher target exchange rate (making the dollar stronger compared to other currencies), the Fed would buy dollars, which reduces the supply of dollars in the foreign exchange market, thereby increasing its value.

If the Fed Sets a Target Exchange Rate That Is