Question

The Federal Reserve Bank has made a policy decision to try to strengthen the U.S. Dollar versus the Japanese Yen. Which of the following intervention actions would increase the U.S. Dollar's exchange value? I Buy U.S. Dollars II Sell U.S. Dollars III Buy Japanese Yen IV Sell Japanese Yen StatusA A. I and III StatusB B. I and IV StatusC C. II and III StatusD D. II and IV

Answer 1

To strengthen the U.S. Dollar versus the Japanese Yen, the Federal Reserve can buy U.S. Dollars and sell Japanese Yen, which corresponds to Option B: I and IV.

Step-by-step explanation:

If the Federal Reserve Bank wants to strengthen the U.S. Dollar versus the Japanese Yen, it could engage in currency interventions in the foreign exchange market. There are two relevant actions: the Fed can buy U.S. dollars, or it can sell Japanese yen. By buying U.S. dollars, the Fed increases the demand for dollars, which can raise the dollar's value.

Conversely, by selling Japanese yen, the Fed increases the supply of yen, which can also lead to an appreciation of the U.S. dollar relative to the yen. Therefore, the appropriate interventions to increase the U.S. Dollar's exchange value would be to buy U.S. Dollars and sell Japanese Yen.

To put it in terms of the choices provided in the question: Option B: I and IV are the correct actions. The Fed would need to Buy U.S. Dollars (I) and Sell Japanese Yen (IV) to achieve the goal of strengthening the U.S. Dollar against the Japanese Yen.