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Fact 25.3.1 Aussie Dollar Hit by Interest Rate Talk
The Australian dollar fell against the U.S. dollar to its lowest value in the past two weeks. The CPI inflation rate was reported to be generally as expected but not high enough to justify previous expectations for an aggressive interest rate rise by Australia's central bank next week.
Source: Reuters, October 28, 2009
-Consider Fact 25.3.1. If Australia followed a ________ exchange rate, they would ________ Australian dollars to void the fall in the value of the Australian dollar.
A)fixed; buy
B)fixed; sell
C)flexible; buy
D)flexible sell
E)crawling peg; sell

Question

Quizplus · Accepted Answer

In a fixed exchange rate system, the central bank intervenes in the foreign exchange market to maintain the currency's value. To prevent the Australian dollar from falling, the central bank would buy Australian dollars, increasing demand and supporting its value.

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