CFA Practice Question

There are 341 practice questions for this study session.

CFA Practice Question

If a nation with a fixed exchange rate has a balance of payment deficit, in order to maintain the exchange rate, the government must ______
A. supply foreign exchange to the market.
B. supply domestic currency to the market.
C. demand foreign exchange from the market.
Explanation: Under a balance of payment deficit, the quantity demanded of foreign exchange exceeds the quantity supplied. This amounts to a shortage of foreign exchange. To maintain the exchange rate, the government must supply the extra foreign exchange demanded.

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