Suppose the Fed wants to fix the U.S. dollar/Mexican peso rate at 11 pesos per dollar under a fixed exchange rate policy. If the exchange rate falls to 10 pesos per dollar, the Fed can
A) buy dollars.
B) sell dollars.
C) attempt to freeze all sales of dollars.
D) any of the above actions could take place.

Question

Quizplus · Accepted Answer

To maintain the fixed exchange rate of 11 pesos per dollar, the Fed would buy dollars to increase demand for dollars, thus raising the exchange rate back to the target level.

Suppose the Fed Wants to Fix the U