If a country has a fixed exchange rate,
A)the equilibrium exchange rate in that market does not respond to changes in supply and demand for currency.
B)central banks have more control over real GDP in the economy.
C)central banks must buy and sell their holdings of currencies to maintain a given exchange rate.
D)the exchange rate is allowed to fluctuate in response to changes in the supply and demand for currency.
E)the central bank sets a fixed amount of domestic currency that may be exchanged.

Question

Quizplus · Accepted Answer

With a fixed exchange rate, the central bank must buy and sell currencies to maintain the fixed rate. This is done to ensure that the supply and demand for the currency is balanced and the exchange rate remains fixed.

If a Country Has a Fixed Exchange Rate