an increase in business optimism in maxistan has changed the real interest rate in maxistan which has…
an increase in business optimism in maxistan has changed the real interest rate in maxistan which has resulted in a change in the flow of financial assets between maxistan and its trading partners and impacted the value of maxistans currency. which of the following describes an appropriate action that the central bank of maxistan could take to offset the change in the value of maxistans currency? choose 1 answer a sell bonds b buy its currency or sell another countrys currency. c increase interest payments made on excess reserves held by banks d sell its currency or buy another countrys currency. e increase the demand for money
Answer
Brief Explanations:
When there is a change in currency value due to financial - asset flows and interest - rate changes, central banks can intervene in the foreign - exchange market. Buying its own currency or selling another country's currency reduces the supply of the domestic currency in the foreign - exchange market, which can offset a depreciation of the domestic currency. Selling bonds affects the money supply and interest rates but not directly the currency value in the way required here. Increasing interest payments on excess reserves impacts banks' reserve - holding behavior and money supply, not directly currency value. Selling its own currency would further depreciate it, and increasing the demand for money is a more general concept and not a direct foreign - exchange market intervention for offsetting currency value changes.
Answer:
B. Buy its currency or sell another country's currency.