Figure 19-11
-Refer to Figure 19-11.The graph above depicts supply and demand for British pounds during a trading day,where the quantity is millions of pounds.In order to support a fixed exchange rate of $2.00 per pound,the British central bank must

Question

Figure 19-11 
-Refer to Figure 19-11.The graph above depicts supply and demand for British pounds during a trading day,where the quantity is millions of pounds.In order to support a fixed exchange rate of $2.00 per pound,the British central bank must

Quizplus · Accepted Answer

In order to maintain a fixed exchange rate of $2.00 per pound, the British central bank must intervene in the foreign exchange market to buy or sell pounds as needed. From the graph, the equilibrium exchange rate is below the fixed rate of $2.00 per pound, which means there is excess supply of pounds. To support the fixed rate, the central bank must increase demand for pounds by buying them in the market. The distance between the equilibrium quantity and the fixed exchange rate of $2.00 per pound corresponds to 1.2 million pounds, which is the amount that the central bank needs to buy per trading day. Therefore, the correct answer is C: buy 1.2 million pounds per trading day.

Figure 19-11 -Refer to Figure 19-11.The Graph Above Depicts Supply and Demand