The figure below illustrates the market for British pounds. D£ and S£ are the nonofficial demand and supply curves of the British pounds, respectively.
If the British government wants to peg the dollar per pound exchange rate at $2.50 per pound, what action would British monetary authorities have to undertake?
A. Buy 1 million pounds and sell 1 million dollars
B. Sell 1 million pounds and buy 2.5 million dollars
C. Buy 1 million pounds and sell 2.5 million dollars
D. Buy 6 million pounds and sell 12 million dollars
Answer: C
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