The Federal Reserve can influence the exchange rate by
A) changing interest rates.
B) buying or selling dollars.
C) Both answers A and B are correct.
D) None of the above answers is correct.

Question

Quizplus · Accepted Answer

The Federal Reserve can influence the exchange rate through both changing interest rates and buying or selling dollars. Changing interest rates can affect the demand for dollars by making investments in the U.S. more or less attractive, while buying or selling dollars directly affects their supply and demand in the foreign exchange market.

The Federal Reserve Can Influence the Exchange Rate by