What can the central bank do in given situation

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Reference no: EM131213792

A country's government is committed to maintaining the fixed-exchange-rate value of its currency through central bank intervention in the foreign exchange market. The country's government also believes that its holdings of international reserve assets are barely adequate, and it would like to keep its holdings close to the current level. The country's international capital flows are relatively unresponsive to changes in interest rates. The country currently has an official settlements balance deficit.

What, if anything, can the central bank do in this situation?

For your answer, draw an IS-LM-FE graph and use it in your explanation.

Reference no: EM131213792

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