China began pegging its currency, the yuan, to the U.S.dollar in 1994.Because the yuan has been ________ at the pegged exchange rate, the Chinese government ________ its reserves of U.S.dollars as the government purchased more ________ to maintain the pegged exchange rate.

Question

Quizplus · Accepted Answer

The question states that the yuan has been pegged to the U.S. dollar, which means that the exchange rate has been fixed at a certain level. Since China is ultimately responsible for maintaining the exchange rate, it needs to buy or sell currencies as necessary to keep the exchange rate stable. If the yuan is undervalued relative to the U.S. dollar, then China can buy U.S. dollars to keep the exchange rate fixed, which means that China's reserves of U.S. dollars will increase. Therefore, choice A is the correct answer.

China Began Pegging Its Currency, the Yuan, to the U