Assume that the Fed intervenes by exchanging dollars for euros in the foreign exchange market. This will cause an ____ U.S. dollars and an ____ euros.

Question

Quizplus · Accepted Answer

When the Fed exchanges dollars for euros, it increases the supply of dollars and decreases the supply of euros in the foreign exchange market. This results in an outward shift in the supply of dollars and an outward shift in the demand for euros. Therefore, the correct option is C.

Assume That the Fed Intervenes by Exchanging Dollars for Euros