Refer to Figure 20.5 for the following questions.
Figure 20.5
-Assume that the Thai government wants to maintain an exchange rate of 0.04 baht per US dollar,as shown in Figure 20.5.If currency speculators think that the Thai government will soon allow the currency to float,how will that affect the number of baht the central bank must buy or sell to maintain the peg at 0.04 baht per US dollar?
A) They must purchase more than 100 million baht per day with US dollars.
B) They must purchase less than 100 million baht per day with US dollars.
C) They must purchase exactly 100 million baht per day with US dollars.
D) They do not have to do anything.

Question

Refer to Figure 20.5 for the following questions.
Figure 20.5 
-Assume that the Thai government wants to maintain an exchange rate of 0.04 baht per US dollar,as shown in Figure 20.5.If currency speculators think that the Thai government will soon allow the currency to float,how will that affect the number of baht the central bank must buy or sell to maintain the peg at 0.04 baht per US dollar?
A) They must purchase more than 100 million baht per day with US dollars. 
B) They must purchase less than 100 million baht per day with US dollars. 
C) They must purchase exactly 100 million baht per day with US dollars. 
D) They do not have to do anything.

Quizplus · Accepted Answer

If speculators believe the baht will float and potentially depreciate, they will sell baht for dollars, increasing supply. To maintain the peg, the central bank must buy more baht to support its value.

Refer to Figure 20.5 for the Following Questions