Aruba Pegs Its Currency (The Aruban Florin) to the U

Multiple Choice

Aruba pegs its currency (the Aruban florin) to the U.S. dollar at a rate of Af 2 = $US1. Suppose that the actual exchange rate is equal to this pegged rate. Now suppose that the Aruban central bank buys dollars. Which of the following describes what will happen to Aruba's exchange rate?

A) The exchange rate will appreciate.
B) The exchange rate will depreciate.
C) The exchange rate will not change.
D) Not enough information is provided to answer.