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© 2014 Pearson Canada Inc.#
When the domestic currency is initially overvalued in a fixed exchange rate regime, the
central bank must intervene in the foreign exchange market to ____ the domestic currency,
thereby allowing the money supply to ____.
A) purchase; decline
B) sell; decline
C) purchase; increase
D) sell; increase
Answer: A
Diff: 2 Type: MC Page Ref: 526 - 528
Skill: Recall
Objective List: 20.3 Summarize the arguments for and against capital controls
When the domestic currency is initially undervalued in a fixed exchange rate regime, the
central bank must intervene in the foreign exchange market to ____ the domestic currency,
thereby allowing the money supply to ____.
A) purchase; decline
B) sell; decline
C) purchase; increase
D) sell; increase
Answer: D
Diff: 2 Type: MC Page Ref: 527 - 528
Skill: Recall
Objective List: 20.3 Summarize the arguments for and against capital controls
Under a fixed exchange rate regime, if a country has an overvalued exchange rate, then its
central bank's attempt to keep its currency from ____ will result in a ____ of
international reserves.
A) depreciating; gain
B) depreciating; loss
C) appreciating; gain
D) appreciating; loss
Answer: B
Diff: 2 Type: MC Page Ref: 527 - 528
Skill: Recall
Objective List: 20.3 Summarize the arguments for and against capital controls