CFA Practice Question

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CFA Practice Question

If a country has fixed exchange rates, the ______

A. government need not worry about the exchange rate.
B. government is committed to buying and selling currencies to maintain the fixed rate.
C. exchange rate is set by law.
Correct Answer: B

To fix an exchange rate, the government must stand ready to buy and sell the currency to keep it at the fixed rate.

User Contributed Comments 2

User Comment
ankurwa10 Would Chinese RMB be considered a fixed rate vis-a-vis the USD?
MarcCFA The government is committed to buy and sell at whatever rate they have to, in order to keep the exchange rate stable.
Example: Yen appreciates, government needs to sell yen at the new rate, in order to get back to the old one.
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