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Saudi Arabia Pegs Its Currency (The Riyal, or SAR) to the U.S

Question 36

Multiple Choice

Saudi Arabia pegs its currency (the riyal, or SAR) to the U.S. dollar. Currently, the exchange rate is SAR3.75 = $US1. Suppose that the Saudi Arabian money multiplier is 1. How does the Saudi Arabian central bank maintain the pegged exchange rate of SAR3.75 = $US1?


A) It sells dollars (for Saudi riyals) in foreign exchange markets whenever the SAR-$US rate falls below SAR3.75 = $US1.
B) It buys dollars (with Saudi riyals) in foreign exchange markets whenever the SAR-$US rate rises above SAR3.75 = $US1.
C) It sells Saudi riyals (for dollars) in foreign exchange markets whenever the SAR-/$US rate rises above SAR3.75 = $US1.
D) It buys Saudi riyals (with dollars) in foreign exchange markets whenever the SAR-$US rate rises above SAR3.75 = $US1.

Correct Answer:

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