The diagram depicts how Country A maintains its exchange
rate at 0.25. Using the models we discussed in lectures, which answer below describes the situation in Country A in the most precise way?

Question

The diagram depicts how Country A maintains its exchange
rate at 0.25. Using the models we discussed in lectures, which answer below describes the situation in Country A in the most precise way?

Answer

Excess
demand for Green Dollars; central bank of country A must
supply Green Dollars using Red Dollars from international
reserves.

Answer

Excess
demand for Green Dollars; central bank of country A must
buy Red Dollars using Green Dollars from international reserves

Answer

Excess
supply of Red Dollars; central bank of country A must
buy Red Dollars using Green Dollars from international reserves.

Answer

Excess
demand for Red Dollars; central bank of country A must
supply Red Dollars in exchange for Green Dollars.

Answer

No
excess supply or excess demand, markets converge to the fundamental exchange
rate.

Crowdly

The diagram depicts how Country A maintains its exchange rate at 0.25. Usin...

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