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Refer to the Graph Above, Which Shows the Supply and Demand

Question 110

Multiple Choice

  Refer to the graph above, which shows the supply and demand for British pounds. D<sub>1</sub> and S<sub>1</sub> represent the initial demand and supply curves. If the supply of British pounds in the foreign exchange market shifts to S<sub>3</sub>, and the British government wanted to fix the exchange rate at its initial level, then it should: A)  Sell U.S. dollars out of its reserves B)  Buy U.S. dollars to add to its reserves C)  Sell British pounds in the foreign exchange market D)  Buy British bonds in the open market Refer to the graph above, which shows the supply and demand for British pounds. D1 and S1 represent the initial demand and supply curves. If the supply of British pounds in the foreign exchange market shifts to S3, and the British government wanted to fix the exchange rate at its initial level, then it should:


A) Sell U.S. dollars out of its reserves
B) Buy U.S. dollars to add to its reserves
C) Sell British pounds in the foreign exchange market
D) Buy British bonds in the open market

Correct Answer:

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