Under the Bretton Woods System,the par rate per British pound was defined as a fixed number of US dollars per pound.If this were set above its equilibrium value,then
A) the British central bank would have to sell pounds for US dollars.
B) a surplus of pounds would exist.
C) the demand for pounds would exceed the supply of pounds.
D) the British central bank would have to buy pounds with US dollars.

Question

Quizplus · Accepted Answer

If the par rate per British pound is set above its equilibrium value, it means that the pound is overvalued relative to the dollar. This will lead to a situation where the demand for dollars will exceed the supply of dollars, while the supply of pounds will exceed the demand for pounds. To maintain the fixed exchange rate, the British central bank will have to buy pounds with US dollars in order to increase the demand for pounds and decrease the demand for dollars.

Under the Bretton Woods System,the Par Rate Per British Pound