In Figure 35-2, a foreign government chooses to maintain an equilibrium market exchange rate of U.S. $1.00

Question:

In Figure 35-2, a foreign government chooses to maintain an equilibrium market of U.S. $1.00 per unit of its own currency. Discuss the implications of the government trying to maintain a higher fixed rate€”say at $1.20.

Figure 35-2

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...

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