Who enforces a fixed exchange rate?

Question

Quizplus · Accepted Answer

Central banks, such as the Federal Reserve in the United States or the European Central Bank in the Eurozone, are responsible for enforcing a fixed exchange rate by buying and selling appropriate currencies to maintain the established exchange rate. This is done through open market operations, where the central bank buys or sells government securities in exchange for the appropriate currency. This helps to stabilize the exchange rate and maintain the value of the currency. Option A is incorrect because trade barriers are typically used to protect domestic industries rather than enforce exchange rates. Option B is incorrect because the gold standard is no longer commonly used as a means of enforcing exchange rates. Option D is incorrect because while the IMF does offer loans to countries, its main role is to promote international monetary cooperation and exchange rate stability.

Who Enforces a Fixed Exchange Rate