Question

Suppose a country has a crawling peg exchange rate policy against the U.S. dollar and the equilibrium exchange rate in units of foreign currency per U.S. dollar is above the target rate. Complete the sentence. To keep the exchange rate pegged at its target​ level, the​ country's central bank must​ ______ U.S. dollars and​ ______ its foreign currency reserves.

Answer 1

sell, decrease

Step-by-step explanation:

Adopting a pegged exchange rate or a fixed exchange rate which is a kind of exchange rate, a country fixes its currency's value vis-a-vis either the value of another country's currency or another measure of value like gold. In this case, in order to keep the exchange rate pegged at the target level, selling US dollars and decreasing foreign currency reserves will be ideal since dollar often keeps on the appreciation.