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Consider that Britain is trying to maintain a fixed exchange rate with respect to the U.S. dollar. However, the present situation in the foreign exchange market is conducive for the British pound to depreciate with respect to the U.S. dollar. If the British government intervenes in the foreign exchange market, then it can be inferred that:

A. Britain is financing a surplus in its overall balance of payments.
B. the British money supply will rise.
C. Britain is financing a deficit in its overall balance of payments.
D. Britain is gaining official international reserves.

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Consider that Britain is trying to maintain a fixed exchange rate with respect to the U.S. dollar. However, the present situation in the foreign exchange market is conducive for the British pound to depreciate with respect to the U.S. dollar. If the British government uses sterilized intervention in the foreign exchange market, then:

A. Britain is gaining official international reserves.
Britain will be running a surplus.
C. the British monetary authorities will be selling British government bonds.
D. the British monetary authorities will be buying British government bonds.

Which of the following best describes a situation in which a country buys domestic currency in order to defend a pegged exchange rate, and also uses a policy in the domestic economy in to prevent the domestic money supply from changing?

A. Official intervention
B. Sterilized intervention
C. Maintaining a crawling peg
Deficit without tears

If a country with a fixed exchange rate faces a fundamental disequilibrium because it has a large, ongoing surplus in it official settlements balance, which of the following policies can it employ to try to achieve external balance?

A. Impose import barriers
B. Raise interest rates
C. Allow the exchange rate to float
D. Obtain a loan from the IMF

If a country with a fixed exchange rate is continuously losing foreign reserves, speculators will:

A. sell the country’s currency and buy foreign currency.
B. speculate that the country’s currency will be revalued.
C. buy the country’s currency and sell foreign currency.
D. lend foreign currency to the country’s central bank.

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