In order to maintain an effective fixed exchange rate that differs from the market rate, the government must have
A) arbitrage capability
B) a surplus of merchandise exports
C) the ability to persuade other governments to control their exports
D) sufficient foreign exchange reserves
E) the ability to float high interest rates

Question

Quizplus · Accepted Answer

To maintain an effective fixed exchange rate that differs from the market rate, a government needs sufficient foreign exchange reserves. This allows the government to intervene in the currency market by buying or selling its own currency to maintain the fixed rate.

In Order to Maintain an Effective Fixed Exchange Rate That