If a country is having its currency pegged to the U.S. dollar (hard peg), and the confidence in the domestic currency falls, sparking a capital outflow. What action would its central bank take to defend its fixed rate against the dollar? Question 23 options: It would build up its international reserve (selling the domestic currency) It would dip into its international reserve (buying the domestic currency) It would raise domestic interest rates It would lower domestic interest rates
If a country is having its currency pegged to the U.S. dollar (hard peg), and the confidence in the domestic currency falls, sparking a capital outflow. What action would its central bank take to defend its fixed rate against the dollar? Question 23 options: It would build up its international reserve (selling the domestic currency) It would dip into its international reserve (buying the domestic currency) It would raise domestic interest rates It would lower domestic interest rates
Chapter9: Forecasting Exchange Rates
Section: Chapter Questions
Problem 1CT
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Question
If a country is having its currency pegged to the U.S. dollar (hard peg), and the confidence in the domestic currency falls, sparking a capital outflow. What action would its central bank take to defend its fixed rate against the dollar?
Question 23 options:
|
It would build up its international reserve (selling the domestic currency) |
|
It would dip into its international reserve (buying the domestic currency) |
|
It would raise domestic interest rates |
|
It would lower domestic interest rates |
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