Suppose the current exchange rate between the Chinese yuan and the United States dollar is 7 yuan per dollar. If the Fed sought to drive up the exchange rate to 8 yuan per dollar then it would
A) buy dollars.
B) sell dollars.
C) buy yuan.
D) sell dollars and buy yuan.

Question

Quizplus · Accepted Answer

To drive up the exchange rate to 8 yuan per dollar, the Fed would need to increase the demand for dollars or decrease the supply of dollars. By buying dollars, the Fed increases the demand for dollars, which can lead to an appreciation of the dollar against the yuan, thus increasing the exchange rate to 8 yuan per dollar.

Suppose the Current Exchange Rate Between the Chinese Yuan and the United