Suppose the Japanese government pegs the yen to the U.S. dollar. What could the Japanese central bank do to prevent depreciation of the yen against the dollar in the foreign exchange market?

A. It would lower interest rates to discourage exports to the United States.
B. It would buy yen and sell dollars in the foreign exchange market.
C. It would increase its official reserve holdings by buying dollars in the foreign exchange market.
D. It would print new yen currency notes and exchange them for Japanese government bonds in an open market operation.


Answer: B

Economics

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