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The Figure Given Below Depicts the Equilibrium in the Foreign

Question 106

Multiple Choice

The figure given below depicts the equilibrium in the foreign exchange market.
Figure 13.1
The figure given below depicts the equilibrium in the foreign exchange market. Figure 13.1 -Refer to Figure 13.1. If the exchange rate is fixed at E<sub>2</sub> but the free market equilibrium rate is E<sub>1</sub> then: A) there is a shortage of British pounds at E<sub>1</sub>. B) no intervention is necessary to achieve the exchange rate E<sub>1</sub>. C) there is a permanent surplus of U.S. dollars at E<sub>1</sub>. D) there is a permanent surplus of U.S. dollars at E<sub>2</sub>. E) there is a permanent shortage of U.S. dollars at E<sub>3</sub>.
-Refer to Figure 13.1. If the exchange rate is fixed at E2 but the free market equilibrium rate is E1 then:


A) there is a shortage of British pounds at E1.
B) no intervention is necessary to achieve the exchange rate E1.
C) there is a permanent surplus of U.S. dollars at E1.
D) there is a permanent surplus of U.S. dollars at E2.
E) there is a permanent shortage of U.S. dollars at E3.

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