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If the Federal Reserve were to buy U.S. dollars for its vault holdings by selling Japanese...

  1. If the Federal Reserve were to buy U.S. dollars for its vault holdings by selling Japanese yen to commercial banks from its vault, the result would be to _____ the supply of U.S. dollars and _____ the exchange rate in terms of the number of yen per U.S. dollar.

            A) Increase, lower                               B)        cause no change in, raise

            C) Decrease, lower                             D)        cause no change in, lower

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Answer #1

C) Decrease, lower

when the federal reserve purchases the USD from market by selling Japanese yen, the supply of USD in the market will get reduced and supply of Japanese yen will be increased whereby the price of USD will go up and price of Japanese yen will come down and will results in declining the exchange rate of USD with Japanese yen

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