Suppose the dollar and the euro had an agreed-upon exchange of $1 = 1 euro and supply and demand factors caused the market value of the two currencies to move to $3 = 1 euro; in order to maintain the fixed exchange rate, the European Central Bank would

Question

Quizplus · Accepted Answer

To maintain the fixed exchange rate of $1 = 1 euro, the European Central Bank would need to increase the supply of euros in the market by buying dollars with euros, thereby reducing the euro's value back to the agreed rate.

Suppose the Dollar and the Euro Had an Agreed-Upon Exchange