In a fixed exchange rate system
A) market forces and the country's stock of gold determine its exchange rate.
B) a central bank affects the value of a currency by changing its foreign exchange reserves.
C) market forces play a role in determining the fixed value of a currency.
D) the International Monetary Fund determines exchange rates.

Question

Quizplus · Accepted Answer

In a fixed exchange rate system, the central bank of a country intervenes in the foreign exchange market by buying or selling its reserves of foreign currency to maintain the fixed value of its currency. Therefore, the central bank affects the value of a currency by changing its foreign exchange reserves. The value of the currency is not determined by market forces or the country's gold reserves in this system. The International Monetary Fund does not determine exchange rates in a fixed exchange rate system, but it may provide financial assistance to countries to maintain their fixed exchange rate regimes.

In a Fixed Exchange Rate System