If the U.S.dollars depreciates against the euro, what can the Fed do to keep the dollar's exchange rate stable?

Question

Quizplus · Accepted Answer

The Fed can buy dollars in the foreign exchange market to increase the demand for dollars and therefore increase the exchange rate. This is known as intervention in the foreign exchange market. Option A is not a viable solution as it is against the principles of free trade. Option B may reduce imports but does not directly address the foreign exchange rate. Option C is the opposite of what the Fed should do as it would decrease the value of the dollar further. Option E is not a viable solution as it would increase the supply of euros and have the opposite effect on the exchange rate.

If the USDollars Depreciates Against the Euro, What Can the Fed Do