To prop up a currency, a country must

Question

Quizplus · Accepted Answer

To prop up a currency, a country must use its reserves to purchase its own currency in the foreign-exchange market. This increases demand for the country's currency and therefore increases its value. The other options listed do not necessarily lead to a stronger currency and can have unpredictable or even negative consequences for the economy. Reducing interest rates may lead to inflation and discourage foreign investment, limiting the movement of capital can lead to capital flight and further devaluation of the currency, and selling gold stock may deplete the country's reserves without necessarily increasing demand for the currency.

To Prop Up a Currency, a Country Must