Question
Asked Apr 11, 2019
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Suppose that the country of Gizmovia wants to maintain the exchange rate of its currency, the gizmo, at $0.50, but the current equilibrium exchange rate for the gizmo is $0.75. If Gizmovia uses exchange market intervention to decrease the value of its currency to $0.50, it should ________ gizmos and _____ dollars in the foreign exchange market.

 

 

A)

sell; buy

 

B)

buy; buy

 

C)

sell; sell

 

D)

buy; sell

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Expert Answer

Step 1

Exchange market:

The Gizmovia country wants to maintain the gizmo exchange rate at $0.5, but the current equilibrium exchange rate for the gizmo is $0.75. In this case, if Gizmovia uses the exchange market interven...

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