The use of foreign exchange reserves to keep exchange rates constant over time is called
A) a fixed exchange rate system.
B) the Bretton Woods system.
C) barter exchange system.
D) a floating exchange rate system.

Question

Quizplus · Accepted Answer

The use of foreign exchange reserves to keep exchange rates constant over time is a characteristic of a fixed exchange rate system. In this system, the exchange rate is pegged to a certain value and the central bank uses its foreign exchange reserves to buy or sell its own currency in the foreign exchange markets to keep the exchange rate at that fixed level.

The Use of Foreign Exchange Reserves to Keep Exchange Rates