-Refer to the above diagram where D and S are Canada's demand for and supply of Swiss francs.At the equilibrium exchange rate,E,Canada's balance of payments is in equilibrium.Given a change in demand from D to D' Canada could maintain the dollar price of francs by:
A) shifting the S curve to the right through the use of domestic expansionary policies.
B) instituting exchange controls to ration Ed francs to Canadian importers who want Ec francs.
C) using international monetary reserves to cover the Ec shortage of francs.
D) using international monetary reserves to cover the cd shortage of francs.

Question

-Refer to the above diagram where D and S are Canada's demand for and supply of Swiss francs.At the equilibrium exchange rate,E,Canada's balance of payments is in equilibrium.Given a change in demand from D to D' Canada could maintain the dollar price of francs by:
A) shifting the S curve to the right through the use of domestic expansionary policies. 
B) instituting exchange controls to ration Ed francs to Canadian importers who want Ec francs. 
C) using international monetary reserves to cover the Ec shortage of francs. 
D) using international monetary reserves to cover the cd shortage of francs.

Quizplus · Accepted Answer

Using international monetary reserves to cover the cd shortage of francs would help maintain the exchange rate by supplying the necessary francs to meet the increased demand without allowing the exchange rate to rise.

-Refer to the Above Diagram Where D and S Are