Suppose that "fundamentals" have determined an exchange rate of 130 yen to the dollar.If the Federal Reserve wishes to maintain an exchange rate of 140 yen to the dollar,it must meet the private excess ________ dollars in the dollar-yen market by ________.

Question

Quizplus · Accepted Answer

The Federal Reserve must meet the private excess supply of dollars in the dollar-yen market by selling yen for dollars. This will increase the demand for yen and decrease the demand for dollars, which will lead to an appreciation of the yen and a depreciation of the dollar, until the exchange rate reaches 140 yen to the dollar.

Suppose That "Fundamentals" Have Determined an Exchange Rate of 130