Use the following graph, which shows the supply and demand for British pounds, to answer the next question.
D1 and S1 represent the initial demand and supply curves. If the supply of British pounds in the foreign exchange market shifts to S3, and the British government wants to fix the exchange rate at its initial level, then it should ________.
A. buy U.S. dollars to add to its reserves
B. sell U.S. dollars out of its reserves
C. buy British bonds in the open market
D. sell British pounds in the foreign exchange market
Answer: B
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