order to boost the value of the DM relative to the dollar
A) the Fed should sell dollars for DM and the Bundesbank should buy DM with dollars
B) the Fed should sell dollars for DM and the Bundesbank should buy dollars with DM
C) the Fed should sell DM for dollars and the Bundesbank should sell dollars for DM
D) the Fed should sell DM for dollars and the Bundesbank should buy DM with dollars

Question

Quizplus · Accepted Answer

To boost the value of the DM relative to the dollar, the Fed (which manages the US dollar) needs to sell dollars for DM, increasing the demand for DM, and the Bundesbank (which manages the German mark) needs to buy DM with dollars, increasing the supply of dollars. This creates a shift in the currency exchange market, causing the DM to appreciate against the dollar. Therefore, option A is the best choice.

Order to Boost the Value of the DM Relative to the Dollar