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Homework answers / question archive / Which of the following two statements is correct? S1: If a country wants to “prop-up” its currency, i

Which of the following two statements is correct? S1: If a country wants to “prop-up” its currency, i

Finance

Which of the following two statements is correct?

S1: If a country wants to “prop-up” its currency, i.e. increase its value, it can do so by buying up its domestic currency. Generally, this leads to an increase in the country’s FX reserves.

S2: If a country wants to weaken its currency, i.e. decrease its value, it can do so by selling its FX reserves and buy its own currency. Generally, this strategy is not sustainable because the country will run out of FX reserves.

A. Both statements are correct

B. Both statements are false

C. S2 is correct but S1 is false

 D. S1 is correct but S2 is false

Option 1

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