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Exhibit: A Fixed Exchange Rate
-(Exhibit: A Fixed Exchange Rate) Suppose the exchange rate between the dollar and the British pound is fixed at £0.3 per dollar. Now suppose U.S. residents choose to purchase more British goods and services. What happens in the foreign exchange market?

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Use the following to answer questions .
Exhibit: A Fixed Exchange Rate 
-(Exhibit: A Fixed Exchange Rate) Suppose the exchange rate between the dollar and the British pound is fixed at £0.3 per dollar. Now suppose U.S. residents choose to purchase more British goods and services. What happens in the foreign exchange market?

Quizplus · Accepted Answer

When U.S. residents purchase more British goods, they need more pounds, increasing the supply of dollars in the foreign exchange market, which would typically cause the dollar to depreciate (exchange rate falls) if the rate were not fixed.

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