Question

Assume that the US currency is weakening due to a variety of domestic and global economic and social factors. ​Which of the following courses of action could be taken by the United States' central bank, the Federal Reserve, if it wants to help boost the dollar so it begins to appreciate?

a. The Federal Reserve could buy government bonds.
b. ​The Federal Reserve could sell US dollars in the foreign exchange market and buy other
c. ​The Federal Reserve could sell government bonds.
d. ​The Federal Reserve could buy US dollars in the foreign exchange market and sell other currency it holds.

Answer 1

Answer:C.The Federal Reserve could sell goverments bonds.

D. The federal reserves could buy US dollars in the foreign exchange market and sell other currency it holds.

Step-by-step explanation:

The supply factor in a foreign exchange market determined to a large extent the value of a currency.

The higher the supply of foreign currency the lower the value and vice versa.

To boost the value of dollar efforts should be towards reducing the volume of dollars in circulation and this could be achieved by selling goverments bonds and buying dollars in the foreign exchange market and selling other currency it holds.

Buying goverments bonds or selling dollars will increase the volume of dollars in circulation and invariably reduce the value.

Answer 2

Answer: d. ​The Federal Reserve could buy US dollars in the foreign exchange market and sell other currency it holds.

Step-by-step explanation:

If the feds sell government bonds, this reduces the money in circulation thereby increasing interest rates and lowering the money that is available to people to spend on imports or foreign investments. But it may not effectively combat the weakening of the dollar.

Selling US dollars and buying other currencies in the foreign exchange market is known as currency intervention. This will create the effect that a higher demand for a currency has, and cause the dollar to appreciate in value.