Question

In a nation which pegs its currency to the U.S. dollar at fixed exchange rates, it is very likely that the central bank must purchase dollars with its domestic currency when facing large trade surplus.

Answer 1

The given statement is TRUE because in a country where there isa large trade surplus in the economy, it would mean that the central government should be selling on its own currencies and it should be buying on the other currencies so, in this case the central bank is trying to offload its domestic currency in order to buy the United States dollars so so it would be helpful because it would help in offploading its own domestic currency in order of reduction of the trade surplus and purchase of the dollar will be helpful.

Given statement is TRUE.