4.5.4—Fixed exchange rates Topic Practice
4.5.4—Fixed exchange rates Topic Practice
Students practise drawing and interpreting exchange rate diagrams to show how central banks intervene using reserves to maintain fixed rates amid shifting demand or supply.
How this is tested
- draw a labelled exchange rate diagram showing reserve sales to offset excess demand
- explain how reserve-backed purchases of domestic currency reduce depreciation pressure
- calculate reserve outflows needed to maintain a fixed rate during external imbalance