Author Question: Please draw a figure illustrating the actions the central bank must take to maintain a fixed ... (Read 102 times)

bclement10 · **on:** Jun 30, 2018

Please draw a figure illustrating the actions the central bank must take to maintain a fixed exchange rate following an increase in output.

What will be an ideal response?

Question 2

The euro is said to be selling at a ________ if the spot dollar price is 1.18 and the nine-month forward rate is 1.16.

A) forward discount
B) forward premium
C) forward spread
D) none of the above

carojassy25 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

A rise in output from to will increase the real money demand, so the central bank must purchase foreign assets and raise the money supply from to , in order to maintain a fixed exchange rate .

Answer to Question 2

A