Question Details

When the government wants to strengthen the dollar 



1. "The response has been to search out the middle ground. The central bank has a simple operating formula: Some of the adjustment will be taken through the exchange rate, some through interest rates, and the rest through a loss of international reserves." This policy involves 
a) a fall in the exchange rate and a fall in the interest rate 
b) a fall in the exchange rate and a rise in the interest rate 
c) a rise in the exchange rate and a fall in the interest rate 
d) a rise in the exchange rate and a rise in the interest rate 
2. "The central bank, which handles the reserve fund for the government, sells reserves and buys dollars when it wants to ....." This clipping is best completed with 
a) prevent the dollar from falling b) prevent the dollar from rising 
c) increase its foreign exchange reserves 
d) fix the exchange rate in the face of a balance of payments surplus 
3. "By keeping interest rates ____, the bank has attracted offshore investment and created a demand for dollars. In turn, this has pushed ____ the dollar, taking millions of dollars off the bottom lines of exporting companies. To curb the dollar's ____, the bank has periodically entered the foreign exchange market _____." The blanks are best filled with 
a) high; up the value of; rise; to sell dollars b) low; up the value of; rise; to sell dollars 
c) high; up the value of; rise; to buy dollars 
d) low; down the value of; fall; to buy dollars 
4. "When the government wants to strengthen the dollar it _______ foreign reserves and ________ domestic dollars. It does the opposite when it wants to keep the dollar from rising too sharply." The blanks are best filled with 
a) buys; buys b) buys; sells c) sells; buys d) sells; sells 
5. "The central bank turned to __________ to stop the Canadian dollar's ______ when it became apparent it was using up reserves to little avail." The blanks are best filled with 
a) higher interest rates; fall b) higher interest rates; rise 
c) lower interest rates; fall d) lower interest rates; rise



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