Under a Fixed-Exchange-Rate System, the Central Bank of a Small

Multiple Choice

Under a fixed-exchange-rate system, the central bank of a small open economy must:

A) have a reserve of its own currency, which it must have accumulated in past transactions.
B) have a reserve of foreign currency, which it can print.
C) allow the money supply to adjust to whatever level will ensure that the equilibrium exchange rate equals the announced exchange rate.
D) follow a rule specifying a constant growth rate for the money supply.