Use the following to answer questions :
Scenario: Gizmovia
The Republic of Gizmovia wants to maintain the exchange rate of its currency, the gizmo, at $0.50, but the current exchange rate for the gizmo is $0.40.
-(Scenario: Gizmovia) Look at the scenario Gizmovia. If Gizmovia uses exchange market intervention to increase the value of its currency to $0.50, it should _____ gizmos and _____ dollars in the foreign exchange market.

Question

Quizplus · Accepted Answer

To increase the value of its currency, Gizmovia needs to buy its own currency(gizmo) in the foreign exchange market, increasing the demand for gizmos and thus increasing its value. And to do this, Gizmovia needs to sell its dollars in the foreign exchange market, increasing the supply of dollars and depress the exchange rate. Therefore, the correct answer is C) buy; sell.

Use the Following to Answer Questions