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The Central Bank van Aruba seeks to fix the exchange rate between the florin and the US dollar at $0.56 per florin. Currently, supply and
The Central Bank van Aruba seeks to fix the exchange rate between the florin and the US dollar at $0.56 per florin. Currently, supply and demand would clear at $0.40 per florin without intervention. a. Using official intervention, what does the Centrale Bank van Aruba have to do to fix the exchange rate at $0.56 per florin? Please show the market for foreign exchange of the florin with the current market conditions and the fixed target rate shown. (10 points) b. If private investors and speculators believe that the $0.56 per florin exchange rate is not sustainable, and the exchange rate should be lower ($0.40 per florin), what actions are they likely to take? (6 points)
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