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How the Fed defends the exchange rate of the dollar

If the Fed wished to defend the exchange rate of the dollar (i.e. prevent the dollar exchange rate from falling) what policy action could it take? Explain.

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Decreasing the supply of dollars would put upward pressure on the exchange rate. The Fed controls the money supply, so it could prevent the exchange ...

Solution Summary

This solution lists strategies that the Federal Reserve could use to prevent the $US exchange rate from falling and explains the theory behind those strategies.

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