When a currency's exchange rate is pegged to the US dollar and the value is fixed below the equilibrium exchange rate as expressed in US dollars per the currency,then in order to maintain the peg,the country's central bank must
A) raise interest rates to raise the demand for the domestic currency.
B) not interfere in the foreign exchange market.
C) buy up the excess domestic currency with US dollars.
D) sell the surplus domestic currency for US dollars.

Question

Quizplus · Accepted Answer

The Answer of When a currency's exchange rate is pegged to the US dollar and the value is fixed below the equilibrium exchange rate as expressed in US dollars per the currency,then in order to maintain the peg,the country's central bank must
A) raise interest rates to raise the demand for the domestic currency.
B) not interfere in the foreign exchange market.
C) buy up the excess domestic currency with US dollars.
D) sell the surplus domestic currency for US dollars.

When a Currency's Exchange Rate Is Pegged to the US