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 $1 = 3 euros; in order to maintain the fixed exchange rate, the European Central Bank would

Question

Quizplus · Accepted Answer

To maintain the fixed exchange rate, the European Central Bank would need to buy euros with dollars. This would increase demand for euros and decrease demand for dollars, helping to keep the exchange rate at the agreed-upon rate of $1 = 1 euro.

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