Question

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 foreign exchange market

Where country maintains

1. Fixed exchange rate and domestic currency overvalued.

When country maintains a fixed exchange rate by selling foreign currency in the market, domestic currency will be likely to overvalued compared to foreign currency.

B.

The speculator attack will shift

Demand for domestic currency to the left and governmant will have to buy the domestic currency.

As demand for domestic currency falls, people will buy foreign currency with the hope that in future they will sell those when devaluation of home currency occurs further.

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