A declining amount of foreign-exchange reserves resulting from maintaining a pegged exchange rate would have which of the following effects?
A)a decrease in domestic money supply
B)a negative item entry in the balance of payments statement
C)rising inflationary pressure
D)an increase in the supply of local currency coming from this nation's central bank

Question

Quizplus · Accepted Answer

When a country uses its foreign-exchange reserves to maintain a pegged exchange rate, it sells foreign currency and buys its own currency, which decreases the domestic money supply.

A Declining Amount of Foreign-Exchange Reserves Resulting from Maintaining a Pegged