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a) Speculators are likely to attack the foreign exchange market if country maintains   (select one)  fixed exchange...

a) Speculators are likely to attack the foreign exchange market if country maintains  

(select one)  fixed exchange rate and domestic currency is overvalued , fixed exchange rate and domestic currency is undervalued , floating exchange rate regime  .

b) The speculator attack will shift the  

(select one)  supply for domestic currency to the right and government will have to buy domestic currency ,

supply for domestic currency to the right and government will have to sell domestic currency ,

supply for domestic currency to the left and government will have to buy domestic currency ,

supply for domestic currency to the left and government will have to sell domestic currency ,

demand for domestic currency to the right and government will have to buy domestic currency ,

demand for domestic currency to the right and government will have to sell domestic currency ,

demand for domestic currency to the left and government will have to buy domestic currency ,

demand for domestic currency to the left and government will have to sell domestic currency .

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Answer #1

a) Speculators are likely to attack the foreign exchange market if country maintains  

fixed exchange rate and domestic currency is undervalued- when the speculators feel that the local currency is undervalued, they can sell the local currency and buy foreign currency so as to deplete the foreign exchange reserves and earn profit during devaluation. Example of Thai Baht can be considered.

b) The speculator attack will shift the  

demand for domestic currency to the left and government will have to buy domestic currency- To reduce the speculative attack, the government will restrict the supply of currency by buying it.

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