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Under a fixed exchange rate regime, if the domestic currency is initially ____, that is,
____ par, the central bank must intervene to sell the domestic currency by purchasing
foreign assets.
A) overvalued; below
B) overvalued; above
C) undervalued; below
D) undervalued; above
Answer: D
Diff: 2 Type: MC Page Ref: 500
Skill: Recall
Objective List: 20.3 Summarize the arguments for and against capital controls
Under a fixed exchange rate regime, if the domestic currency is initially undervalued, that is,
above par, the central bank must intervene to sell the ____ currency by purchasing
____ assets.
A) domestic; foreign
B) domestic; domestic
C) foreign; foreign
D) foreign; domestic
Answer: A
Diff: 2 Type: MC Page Ref: 500
Skill: Recall
Objective List: 20.3 Summarize the arguments for and against capital controls
Under a fixed exchange rate regime, if the domestic currency is initially ____, that is,
____ par, the central bank must intervene to purchase the domestic currency by selling
foreign assets.
A) overvalued; below
B) overvalued; above
C) undervalued; below
D) undervalued; above
Answer: A
Diff: 2 Type: MC Page Ref: 500
Skill: Recall
Objective List: 20.3 Summarize the arguments for and against capital controls
Under a fixed exchange rate regime, if the domestic currency is initially overvalued, that is,
below par, the central bank must intervene to purchase the ____ currency by selling
____ assets.
A) domestic; foreign
B) domestic; domestic
C) foreign; foreign
D) foreign; domestic
Answer: A
Diff: 2 Type: MC Page Ref: 500
Skill: Recall
Objective List: 20.3 Summarize the arguments for and against capital controls