Refer to Figure 20.3 for the following questions.
Figure 20.3
-Suppose the graph in Figure 20.3 represents the market for the British pound under the Bretton Woods System.If the par exchange rate was set at 4 US dollars,
A) a shortage of pounds will exist.
B) the British central bank will have to buy pounds with US dollars.
C) the pound will be undervalued versus the US dollar.
D) the demand for pounds will be greater than the supply.

Question

Refer to Figure 20.3 for the following questions.
Figure 20.3 
-Suppose the graph in Figure 20.3 represents the market for the British pound under the Bretton Woods System.If the par exchange rate was set at 4 US dollars,
A) a shortage of pounds will exist. 
B) the British central bank will have to buy pounds with US dollars. 
C) the pound will be undervalued versus the US dollar. 
D) the demand for pounds will be greater than the supply.

Quizplus · Accepted Answer

Under the Bretton Woods System, if the exchange rate is set at a certain level and the market rate deviates, the central bank intervenes. If the par rate is set at 4 US dollars and the market rate is below this, the British central bank would need to buy pounds with US dollars to maintain the fixed rate.

Refer to Figure 20.3 for the Following Questions